CPA Financial Statement Documentation WPs

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WORKPAPER ORGANIZATION AND INDEXING
General (G)
Audited financial statements

Schedules supporting footnote disclosures and other report workpapers
Consolidation and combination workpapers
Adjusted trial balance
List of general ledger balances
Adjusting journal entries and reclassification entries
Analysis of unrecorded audit differences
Financial statement disclosure checklist
Letter of representations
Subsequent events review documentation
Commitments and contingencies, including lawyers’ letters
Board of directors and related committee minutes
Reports on internal control
Notes for management letter comments
Review and approval checklist
Tax return information and worksheets
Planning and Administration (PA)
Client acceptance and retention evaluation form

Audit planning questionnaire
Understanding of internal control form
Analytical review workpapers
Audit program
Engagement letter
Audit time budget and control form
Correspondence and confirmation control
Control of schedules to be prepared by client
General correspondence and memos
Assets (A)
Cash
Marketable securities and related income
Other investments and related income
Trade accounts receivable
Notes receivable and related income
Allowance for doubtful accounts and notes receivable
Inventory and production costs
Prepaid expenses
Other current assets
Property, plant, and equipment
Intangible assets
Other noncurrent assets
Liabilities (L)
Accounts payable
Notes payable and related interest expense
Accrued payroll and related liabilities
Other accrued liabilities
Income taxes
Other current liabilities
Long‑term debt and related interest expense (including capitalized lease obligations)
Other long‑term liabilities
Equity (E)
Capital stock
Additional paid-in capital
Retained earnings
Operations (O)
Systems walkthrough
Tests of controls
Revenues
Cost of sales
Selling, general, and administrative expenses
Other operating expenses
Nonoperating income and expense
ILLUSTRATIVE AUDIT ENGAGEMENT LETTER
(Prepared on auditor’s letterhead)
(Date)
(Name and address of client)
Dear__________:
Thank you for meeting with us to discuss the requirements of our forthcoming engagement. This letter confirms our understand
balance-sheet date) and for the year ending [ended] (insert date).
We will audit the Company’s balance sheet as of (insert date), and the related statements of operations, retained earnings, and
financial statements in conformity with accounting principles generally accepted in the United States of America and for express
to express an opinion other than unqualified; we will fully discuss the reasons with you in advance under these circumstances.
Our audit will be conducted in accordance with auditing standards generally accepted in the United States of America. Those s
about whether the financial statements are free of material misstatement, whether caused by error or fraud. An audit includes e
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evalua
and related information available for purposes of the audit, and for the accuracy and completeness of such information.
Our audit will include such tests of the accounting records and such other auditing procedures as we consider necessary in the
recorded in the accounts, tests of the physical existence of inventories, and direct confirmation of receivables and certain other
conclusion of our audit, we will request certain written representations from you about the financial statements and related matt
An audit conducted in accordance with generally accepted auditing standards is subject to certain limitations and the inherent r
material errors and fraud that come to our attention. We will also inform you of any illegal acts that come to our attention, unless
An audit includes obtaining an understanding of internal control sufficient to plan the audit and to determine the nature, timing,
control or to identify reportable conditions, i.e., significant deficiencies in the design or operation of internal control. However, du
practices can be improved, we will communicate them to you in a separate letter.
We direct your attention to the fact that management of (insert name of client) has the responsibility for the proper recording of
for the safeguarding of assets, for ensuring compliance with applicable laws and regulations, and for the preparation and substa
principles and their application, the selection and method of application are the sole responsibility of the Company’s manageme
regulations applicable to its activities. Also, management is responsible for adjusting the financial statements to correct materia
misstatements, resulting from errors or fraud, aggregated by us during the current engagement and pertaining to the latest peri
whole.
If you intend to publish or otherwise reproduce the financial statements and make reference to our firm, you agree to provide us
a copy of the final reproduced material for our approval before it is distributed.
The timing of our audit will be scheduled for performance and completion as follows: (insert dates)
Document internal control and preliminary tests
Observe physical inventories

Mail confirmations
Perform year-end audit procedures
Issue audit report
Our fees are based on the amount of time required at various levels of responsibility, plus actual out-of-pocket expenses. Invoic
audit will be between $____and $____. We will notify you immediately of any circumstances we encounter that could significan
assist in the preparation of schedules and analyses of accounts. This effort could substantially reduce our time requirements, fa
We will also prepare the Company’s federal and state (insert names of states) income tax returns for the fiscal year ending [end
Further, we will be available during the year to consult with you on the tax effects of any proposed transactions or contemplated
During the course of the audit we may observe opportunities for economy in, or improved controls over, your operations. We wi
If the foregoing is in accordance with your understanding, please indicate your agreement by signing the duplicate copy of this
We appreciate the opportunity to be your certified public accountants and look forward to working with you and your staff.
Very truly yours,
(Partner’s name)
(Firm’s name)
***************************************************************
RESPONSE:
This letter correctly sets forth our understanding.
(Insert client name)
Approved by:
Title:
Date:
NOTES AND OBSERVATIONS:
The auditor may wish, and in some cases may be required by law, regulation, or audit contract, to confirm in writing with the clie
circumstances, the auditor may use sample language such as the following in the engagement letter:
“The working papers for this engagement are the property of (name of auditor) and constitute confidential information. However
given to it by law or regulation. If requested, access to such working papers will be provided under the supervision of (name of
(name of regulator). The (name of regulator) may intend, or decide, to distribute the photocopies of information contained there
Begin Complete
ILLUSTRATIVE MANAGEMENT REPRESENTATION LETTER
2
a.
b.
6. There has been no:

a.
b.
8
a.
b.
c.
9
a.
b.
c.
10
11.
(Name of Chief Executive Officer and Title)6
(Name of Chief Financial Officer and Title)6
GENERAL
2
5
6.
7.
ILLUSTRATIVE MANAGEMENT REPRESENTATION LETTER
(Prepared on client’s letterhead)
(Date)
To (Independent Auditor)
We are providing this letter in connection with your audit(s) of the (identify the financial statements, e.g., balance sheet, stateme
ended, for the purpose of expressing an opinion as to whether the (consolidated) financial statements present fairly, in all mate
with accounting principles generally accepted in the United States of America. We confirm that we are responsible for the fair p
flows in conformity with generally accepted accounting principles.
Certain representations in this letter are described as being limited to matters that are material. Items are considered material, r
of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be
We confirm, to the best of our knowledge and belief, as of (date of auditor’s report), the following representations made to you d
The financial statements referred to above are fairly presented in conformity with accounting principles generally accepted in th
We have made available to you all:

Financial records and related data.
Minutes of the meetings of stockholders, directors, and committees of directors, or summaries of actions of recent meetings for
There have been no communications from regulatory agencies concerning noncompliance with or deficiencies in financial repo
There are no material transactions that have not been properly recorded in the accounting records underlying the financial state
We believe that the effects of the uncorrected misstatements in the financial statements summarized in the attached schedule a
6. There has been no:

Fraud involving management or employees who have significant roles in internal control.
Fraud involving others that could have a material effect on the financial statements.
The Company has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities.
The following have been properly recorded or disclosed in the financial statements:
Related-party transactions, including sales, purchases, loans, transfers, leasing arrangements, and guarantees, and amounts r
Guarantees, whether written or oral, under which the Company is contingently liable.
Significant estimates and material concentrations known to management that are required to be disclosed in accordance with th
Significant estimates are estimates at the balance-sheet date that could change materially within the next year. Concentrations
which events could occur that would significantly disrupt normal finances within the next year.
There are no:

Violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statem
Unasserted claims or assessments that our lawyer has advised are probable of assertion and must be disclosed in accordance
Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by FASB-5.
The Company has satisfactory title to all owned assets, and there are no liens or encumbrances on such assets nor has any as
We have complied with all aspects of contractual agreements that would have a material effect on the financial statements in th
(Add additional representations that are unique to the entity’s business or industry. See Note 1 below for illustrative examples o
To the best of our knowledge and belief, no events have occurred subsequent to the balance-sheet date and through the date o
(Name of Chief Executive Officer and Title)6
(Name of Chief Financial Officer and Title)6
Depending on the circumstances of the audit engagement, the auditor may determine that matters other than those in the illustr
additional representations and, therefore, necessitate modification to the illustrative letter:
Unaudited interim information accompanies the financial statements.
The unaudited interim financial information accompanying (presented in Note X to) the financial statements for the (identify all r
principles applicable to interim financial information (and with Item 302(a) of Regulation S-K). The accounting principles used to
financial statements.
The impact of a new accounting principle is not known.
We have not completed the process of evaluating the impact that will result from adopting Financial Accounting Standards Boa
disclose the impact that adopting FASB Statement No. XXX will have on its financial position and the results of operations when
There is justification for a change in accounting principles.
We believe that (describe the newly adopted accounting principle) is preferable to (describe the former accounting principle) be
Financial circumstances are strained, with disclosure of management’s intentions and the entity’s ability to continue as a going
Note (X) to the financial statements discloses all of the matters of which we are aware that are relevant to the entity’s ability to c
The possibility exists that the value of specific significant long-lived assets or certain identifiable intangibles may be impaired.
We have reviewed long-lived assets and certain identifiable intangibles to be held and used for impairment whenever events or
and have appropriately recorded the adjustment.
The work of a specialist has been used by the entity.
We agree with the findings of specialists in evaluating the (describe assertion) and have adequately considered the qualification
underlying accounting records. We did not give or cause any instructions to be given to specialists with respect to the values or
have had impact on the independence or objectivity of the specialists.
ASSETS
Cash
Disclosure is required of compensating balances or other arrangements involving restrictions on cash balances, line of credit, o
Arrangements with financial institutions involving compensating balances or other arrangements involving restrictions on cash b
Financial Instruments
Management intends to, and has the ability to, hold to maturity debt securities classified as held-to-maturity.
Debt securities that have been classified as held-to-maturity have been so classified due to management’s intent to hold such s
available-for-sale or trading.
Management considers the decline in value of debt or equity securities to be temporary.
We consider the decline in value of debt or equity securities classified as either available-for-sale or held-to-maturity to be temp
Management has determined the fair value of significant financial instruments that do not have readily determinable market valu
The methods and significant assumptions used to determine fair values of financial instruments are as follows: (describe metho
significant assumptions used result in a measure of fair value appropriate for financial statement measurement and disclosure p
There are financial instruments with off-balance-sheet risk and financial instruments with concentrations of credit risk.
The following information about financial instruments with off-balance-sheet risk and financial instruments with concentrations o
financial instruments with off-balance-sheet risk, (b) the amount of credit risk of financial instruments with off-balance-sheet risk
concentrations of credit risk arising from all financial instruments and information about the collateral supporting such financial i
Receivables
Receivables have been recorded in the financial statements.
Receivables recorded in the financial statements represent valid claims against debtors for sales or other charges arising on or
value.
Inventories
Excess or obsolete inventories exist.
Provision has been made to reduce excess or obsolete inventories to their estimated net realizable value.
Investments
There are unusual considerations involved in determining the application of equity accounting.
Deferred Charges
Material expenditures have been deferred.
We believe that all material expenditures that have been deferred to future periods will be recoverable.
Deferred Tax Assets
A deferred tax asset exists at the balance-sheet date.
LIABILITIES
Debt
Short-term debt could be refinanced on a long-term basis and management intends to do so.
The entity has excluded short-term obligations totaling $(amount) from current liabilities because the entity intends to refinance
refinanced as follows:)
Tax-exempt bonds have been issued.
Tax-exempt bonds issued have retained their tax-exempt status.
Taxes
Management intends to reinvest undistributed earnings of a foreign subsidiary.
We intend to reinvest the undistributed earnings of (name of foreign subsidiary).
Contingencies
Estimates and disclosures have been made of environmental remediation liabilities and related loss contingencies.
Provision has been made for any material loss that is probable from environmental remediation liabilities associated with (name
liabilities and related loss contingencies and the expected outcome of uncertainties have been adequately described in the enti
Agreements may exist to repurchase assets previously sold.
Agreements to repurchase assets previously sold have been properly disclosed.
Pension and Postretirement Benefits
An actuary has been used to measure pension liabilities and costs.
We believe that the actuarial assumptions and methods used to measure pension liabilities and costs for financial accounting p
There is involvement with a multiemployer plan.

We are unable to determine the possibility of a withdrawal liability in a multiemployer benefit plan.
Postretirement benefits have been eliminated.
Employee layoffs that would otherwise lead to a curtailment of a benefit plan are intended to be temporary.
Current employee layoffs are intended to be temporary.
Management intends to either continue to make or not make frequent amendments to its pension or other postretirement benef
commitment to increase benefits obligations.
EQUITY
There are capital stock repurchase options or agreements or capital stock reserved for options, warrants, conversions, or other
Capital stock repurchase options or agreements or capital stock reserved for options, warrants, conversions, or other requireme
INCOME STATEMENT
There may be a loss from sales commitments.
Provisions have been made for losses to be sustained in the fulfillment of, or from inability to fulfill, any sales commitments.
There may be losses from purchase commitments.
Provisions have been made for losses to be sustained as a result of purchase commitments for inventory quantities in excess o
Nature of the product or industry indicates the possibility of undisclosed sales returns.
We have fully disclosed to you all sales terms, including all rights of return or price adjustments and all warranty provisions.
The representation letter should be dated as of the date of the auditor’s report because the auditor is concerned with events oc
The representations illustrated in this letter should be modified when necessary to read, “Except as disclosed to you (or as disc
Alternatively, the auditor may wish to list the type of meetings and the respective dates.
If the entity has not consulted a lawyer concerning litigation, claims, or assessments, the auditor normally would rely on the rev
“We are not aware of any pending or threatened litigation, claims, or assessments, or unasserted claims or assessments that a
Accounting Standards Board Statement No. 5, Accounting for Contingencies, and we have not consulted a lawyer concerning l
The letter of representations should be signed by members of management who are responsible for, and knowledgeable about
officer should sign the letter. However, under certain circumstances, other officers and employees whose functions include sign
sign the letter.
As part of the management representations letter, the auditor is required to provide the client with a summary of any uncorrecte
management representations letter. The summary can simply be the auditor’s passed audit adjustment worksheet that lists the
statements as a whole. Exactly how the auditor summarizes this information is a matter of professional judgment. Some auditor
representations letter; others may want to summarize the information in a narrative format. The workpaper (G-7), “Analysis of U
& Other Misc. Workpapers,” presents an example of a form that the auditor might use to provide the client such a summary.
In complying with this requirement in the management representations letter, the auditor should consider the following additiona
a. If management believes that certain of the identified items are not misstatements, management’s belief may be acknowledge
misstatements because [description of reasons].”
b. The auditor may designate an amount below which misstatements need not be accumulated in the passed audit adjustment
representations letter need not include such misstatements.
c. The summary of uncorrected misstatements should include sufficient information to provide management with an understand
d. Similar uncorrected misstatements may be aggregated.
e. If the client has recorded all the audit adjustments, including those determined to be immaterial, the representation letter may
proposed by the auditor, material and immaterial, have been recorded.
the aggregate, to the financial statements taken as a whole.7
rding the lack of litigation, claims, and assessments. In these circumstances, this item might be worded as follows:
1
2
REQUEST FOR CUTOFF BANK STATEMENT
(Date)1
(Name and address of financial institution)2
Dear__________:
In connection with an audit of the financial statements of (insert name of client) as of (insert balance-sheet date) and for the (ins
please mail the following information directly to our auditors (insert name and address of auditors):
For the account numbers listed below, a statement of our account and the related canceled checks, deposit slips, and documen
the account for the period from (insert balance-sheet date) to (insert cutoff date3), inclusive.
Account Name
Thank you for your anticipated timely cooperation with this request.
Respectfully,
(Name of client)
(Client’s authorized signature and title)
The auditor should send this request by no later than the date of the statement of financial position so the bank will be able to p
render the cutoff statements as of the cutoff date.
To expedite the processing of this request by the bank, this letter should be addressed to a financial institution official who is re
relationship with the client or is knowledgeable about the transactions or arrangements.
Account Number
1
STANDARD FORM TO CONFIRM ACCOUNT BALANCE INFORMATION WITH FINANCIAL INSTITUTIONS1
STANDARD FORM TO CONFIRM ACCOUNT

BALANCE INFORMATION WITH FINANCIAL INSTITUTIONS
Financial
Institution’s
Name and
Address
ACCOUNT NAME
The information presented above by the customer is in agreement with our records. Although we have not conducted a compre
detailed search of our records, no other deposit or loan accounts have come to our attention except as noted below.
EXCEPTIONS AND/OR COMMENTS
Please return this form directly to our accountants:

[
* Ordinarily, balances are intentionally left blank if they

are not available at the time the form is prepared. [
The auditor should use this form only to confirm deposit account balances (e.g., checking accounts, savings accounts, certifica
deposit) and direct loans. Details of compensating balances, lines of credit, and contingent liabilities should be separately confi
the bank official who is responsible for the client’s account or is knowledgeable about such transactions or arrangements.
ORIGINAL
To be mailed to accountant
CUSTOMER NAME
We have provided to our accountants the following information as of the close of
business on _________________, 20___, regarding our deposit and loan balances

[ ] Please confirm the accuracy of the information, noting any exceptions to the
information provided. If the balances have been left blank, please complete this form
by furnishing the balance in the appropriate space below.* Although we do not
[ ] request nor expect you to conduct a comprehensive, detailed search of your record
if during the process of completing this confirmation additional information about oth
At the close of business on the date listed above, our records indicated the following deposit balance(s):
ACCOUNTINTERESTBALANCE*
We were directly liable to the financial institution for loans at the close of business on the date listed above as follows:
ACCOUNT NO./ DATE THROUGH WHICH

DESCRIPTBALANCE* DATE DUEINTERESTINTEREST IS PAID DESCRIPTION OF COLLATERAL
(Customer’s Authorized Signature) (Date)
(Financial Institution (Date)

(Title)
]
formation as of the close of
our deposit and loan balances.

g any exceptions to the
lank, please complete this form
low.* Although we do not
detailed search of your records,
dditional information about other deposit and loan accounts we may have with you comes to your attention, please include such information
ed above as follows:
TION OF COLLATERAL
lease include such information below. Please use the enclosed envelope to return the form directly to our accountants.
()
()
REQUEST FOR CONFIRMATION OF SECURITIES HELD BY BROKERS OR OTHER THIRD PARTIES WHEN LISTING OF
SECURITIES IS INCLUDED IN THE CONFIRMATION REQUEST1
(Date)
(Name and address of broker or other third party)
Dear________:
Our auditors (insert name and address of auditors) are conducting an audit of our financial statements as of (insert date) and fo
(insert period [e.g., year, quarter]) then ended. Our records show the following information regarding securities belonging to (ins
of client) that were held by you for our account as of (insert date):
Description
Please check the appropriate response below after determining whether this is in agreement with your records. If there are diffe
please provide information in sufficient detail to assist our auditors in reconciling the difference.
After checking the appropriate response below, please sign and date your reply and mail it directly to our auditors in the enclos
envelope.
Respectfully,
(Name of client)
***********************************************
TO: (Insert auditor’s name)
The securities information listed above held for the account of (insert name of client) as of (insert date) is correct.
The securities information listed above held for the account of (insert name of client) as of (insert date) is not correct. Our recor
the following differences:
Signature:
Title:
Date:
This confirmation request is practical when the client has a relatively small number of securities held by a broker or a third party
therefore, it is relatively easy to list such securities in the confirmation request. If the auditor believes it is more efficient to simpl
a statement of the client’s account directly from the broker or third party, the confirmation request form at Section II, Item 6 (CO
should be used instead.
Par or
Principal Number
Amount of Shares
Market
Total Cost Value
$ $ $
$ $ $
$ $ $
$ $ $
$ $ $
1
4
REQUEST FOR CONFIRMATION OF SECURITIES HELD BY BROKERS OR OTHER THIRD PARTIES WHEN LISTING OF
SECURITIES IS NOT INCLUDED IN THE CONFIRMATION REQUEST
(Date)
(Name and address of broker or other third party)
Dear__________:
(insert period [e.g., year, quarter]) then ended. Accordingly, please send directly to them a statement of our account(s) with you
(insert date), indicating the following information:
Description of securities held by you for our account, including (a) par or principal amount, (b) number of shares, (c) cost, and (
value
Description of securities out for transfer to our name, including (a) par or principal amount, (b) number of shares, (c) cost, and (
value
Amounts payable to or due from us, if any
A statement of trade activity during the period from (insert date) to (insert date)
Please mail your reply directly to our auditors in the enclosed return envelope. Thank you for your anticipated timely cooperatio
request.
Respectfully,
(Name of client)

()
()
1
()
()
2
REQUEST FOR CONFIRMATION OF ACCOUNTS RECEIVABLE—
POSITIVE REQUEST1
(Date)
(Customer’s name and address)
Dear__________:
In connection with an audit of the financial statements of (insert name of client) as of (insert date) and for the (insert period [e.g
quarter]) then ended, please confirm directly to our auditors (insert name and address of auditors) the amount of your indebtedn
as of (insert date), which according to our records amounted to $______.2
please provide any information in sufficient detail to assist our auditors in reconciling the difference.
envelope. DO NOT SEND ANY PAYMENTS TO OUR AUDITORS.
Respectfully,
(Name of client)
***********************************************
The balance due (insert client’s name) shown above as of (insert date) is correct.
Our records show a balance of $_______ as of (insert date) and the difference may be due to the following:
Signature:
Title:
Date:
This standard confirmation request should be modified if the auditor believes that the customer pays by invoice, rather than by
and it is therefore more effective and appropriate to confirm open invoices. The following alternative confirmation request is an
of how the standard confirmation request might be modified to confirm open invoices.
(Date)
Dear :
In connection with an audit of the financial statements of (insert name of client) as of (insert date) and for the (insert period [e.g
quarter]) then ended, please confirm directly to our auditors (insert name and address of auditors) the amounts on the invoices
below (or in the attached statement) as shown by our records that you were indebted to us as of (insert date). Please take notic
invoices that our auditors have selected for confirmation purposes may represent only a portion of the total balance due from yo
Invoice Number
please provide any information in sufficient detail to assist our auditors in reconciling the difference.
Respectfully,
(Name of client)
***********************************************
The invoice balances due (insert client’s name) shown above as of (insert date) are correct.
The invoice balances due (insert client’s name) shown above as of (insert date) are not correct. Our records show the following
differences:
Signature:
Title:
Date:
If the auditor believes that an itemized customer statement of the balance due would assist the customer in reconciling the amo
of the confirmation date, the auditor should include the following sentence after the first sentence of the confirmation request:
“Enclosed is an itemized statement of the balance due that is being furnished to assist you in reconciling the amount shown in y
records with the amount shown per our records.”
Invoice Invoice
Date Amount
1
REQUEST FOR CONFIRMATION OF ACCOUNTS RECEIVABLE—NEGATIVE REQUEST
(Date)
Dear__________:
(insert period [e.g., year, quarter]) then ended. Our records show the amount of your indebtedness to us as of (insert date) to b
$_______. If this amount is not correct, please report details of any differences directly to our auditors in the space provided be
use the enclosed return envelope.
IF YOU DO NOT WRITE TO OUR AUDITORS, THEY WILL CONSIDER THE BALANCE SHOWN ABOVE TO BE CORRECT.
REPLY IS NECESSARY IF THE AMOUNT SHOWN ABOVE AGREES WITH YOUR RECORDS.
DO NOT SEND ANY PAYMENTS TO OUR AUDITORS.
Respectfully,
(Name of client)
***********************************************
The balance due (insert client’s name) shown above as of (insert date) is not correct. Our records show a balance of $_______
difference may be due to the following:
Signature:
Title:
Date:
If the auditor decides to send negative accounts receivable confirmation requests, the auditor should consider sending them at
the client’s regular monthly billings. The auditor may achieve efficiency by coordinating the confirmation procedures with the clie
routine preparation and mailing of statements. SECOND REQUESTS ARE NOT SENT FOR NEGATIVE CONFIRMATION REQ
()
()
1
REQUEST FOR CONFIRMATION OF NOTES RECEIVABLE
(Date)
(Borrower’s name and address)
Dear__________:
(insert period [e.g., year, quarter]) then ended. Our records show the following information regarding your indebtedness to us a
date)1:
1. Initial date of note (insert date)
2. Original amount of indebtedness (insert amount)
3. Unpaid principal balance (insert amount)
4. Annual interest rate (insert rate)
5. Date interest was paid to (insert date)
6. Due date of note (insert date)
7. Description of collateral (insert description; if none insert “NONE”)
Please check the appropriate response below after determining whether the information shown above is in agreement with you
If there are differences, please provide any information in sufficient detail to assist our auditors in reconciling the difference.
Respectfully,
(Name of client)

***********************************************
The information shown above regarding our note payable to (insert client’s name) agrees with our records and is correct as of (
date).
The information shown above regarding our note payable to (insert client’s name) does not agree with our records and is not co
(insert date). The following are exceptions and differences we have identified:
Signature:
Title:
Date:
To expedite and enhance the reply, the auditor may wish to include copies of the note, the related amortization schedule, and t
agreement.
$
%
1
2
3
1
REQUEST FOR CONFIRMATION OF INVENTORIES HELD BY WAREHOUSES OR OTHER THIRD PARTIES WHEN LISTIN
INVENTORIES IS PROVIDED BY THE CLIENT AND ENCLOSED WITH THE CONFIRMATION REQUEST
(Date)
(Name and address of warehouse or other third party)
Dear__________:
(insert period [e.g., year, quarter]) then ended. We have furnished our auditors with a copy of the attached listing, which reflects
inventory held by you for our account as of (insert date). Accordingly, please review the listing carefully and confirm directly to o
the information requested below as of (insert date).
After completing the information in the space provided below, please sign and date your reply and mail it directly to our auditors
enclosed return envelope.
Respectfully,
(Name of client)
***********************************************
The enclosed inventory listing1 is in agreement with our records as of (insert date) with the following exceptions, if any. (If no ex
are noted, please state “NONE.”)
The correctness of the quantities we are confirming to you was determined as follows (please check the appropriate items):
Physical count
Weight
Measure
Book record only
Other (specify)
The following is a list of negotiable and nonnegotiable warehouse receipts issued (if none were issued, please state “NONE”). A
please state whether such receipts have, to your knowledge, been assigned or pledged.
The following are known liens against the merchandise (if none are known to your knowledge, please state “NONE”).
The amount of unpaid charges, if any, as of (insert date) is $______.
Signature:
Title:
Date:
The inventory listing should include quantities on hand and specify the following information: (a) lot number, (b) date received, (
merchandise, and (d) unit of measure or package including number of units and kind of units (e.g., box, can, dozen).
1
1
2
4
REQUEST FOR CONFIRMATION OF INVENTORIES HELD BY WAREHOUSES OR OTHER THIRD PARTIES WHEN LISTIN
INVENTORIES IS NOT PROVIDED BY THE CLIENT AND NOT ENCLOSED WITH THE CONFIRMATION REQUEST
(Date)
(Name and address of warehouse or other third party)
Dear__________:
(insert period [e.g., year, quarter]) then ended. Please furnish directly to our auditors the information requested below about me
held in your custody for our account as of (insert date):
Quantities on hand, including:
a. Lot number
b. Date received
c. Type of merchandise
d. Unit of measure or package including number of units and kind of units (e.g., box, can, dozen)
In addition to the above-requested quantities, please complete the information requested below with respect to the merchandis
completing the information requested, please sign and date your reply and mail it directly to our auditors in the enclosed return
Respectfully,
(Name of client)
***********************************************
The correctness of the quantities we are confirming to you was determined as follows (please check the appropriate items):
Physical count
Weight
Measure
Book record only
Other (specify)
The following is a list of negotiable and nonnegotiable warehouse receipts issued (if none were issued, please state “NONE”). A
please state whether such receipts have, to your knowledge, been assigned or pledged.
The following are known liens against the merchandise (if none are known to your knowledge, please state “NONE”).
The amount of unpaid charges, if any, as of (insert date) is $_________.
Signature:
Title:
Date:
RETURN
TO:
REPORT
FROM
INSURANCE
COMPANY
STANDARD CONFIRMATION INQUIRY FOR LIFE INSURANCE POLICIES1
LIFE INSURANCE STANDARD CONFIRMATION INQUIRY
Your completion of the following report will be sincerely appreciated. IF THE ANSWER TO ANY ITEM IS “NONE,” PLEASE SO
Use the enclosed envelope to return the original directly to our accountant (see name to left).
Yours truly,
By
Authorized Signature
Information requested as of
(Date)
(A) Policy Number

(B) Insured-Name(s)
(C) Beneficiaries as Shown on Policies
1 Face Amount of Basic Policy
2 Values Shown as of (insert Date If Other Than Date Requested)
3 Premiums, Including Prepaid Premiums, Are Paid to (insert Date)
4 Policy Surrender Value (Excluding Dividends, Additions & Indebtedness Adjustments)
5 Surrender Value of All Dividend Credits, Including Accumulations & Additions
6 Termination Dividend Currently Available on Surrender
7 Other Surrender
Values Available to
Policy Owner
8 Outstanding Policy Loans, Excluding Accrued Interest
9 If Any Policy Loans
Exist, Complete
Either “a” or “b”
NOTE: PLEASE ANSWER ANY ITEM(s) 10-12 INDICATED BY A(3).
 10 Is There an Assignee of Record? (Enter Yes or No)
 11 Is Beneficiary of Record as Shown in Item (C) Above? (Enter Yes or No*)
 12 Is the Name of Policy Owner (Subject to Any Assignment) as Shown on Top of Form:  Yes  No If No, Enter Name of P
Owner of Record:
* If Answer to Item 11 is “No.” Please Give Name of Beneficiary or
Date of Lost Beneficiary Changer
ORIGINAL
To be mailed to accountant
Date:
(Name of owner as shown on policy contract)
Policy #1 Policy #2 Policy #3
(if Verification Requested in Item 11)
a. Prepaid Premium Value

b. Premium Deposit Funds
c. Other
a. Interest Accrued on Loans

b1. Loan Interest Is Paid to (Enter Date)
b2. Interest Rate Is (Enter Rate)
* * *
Yours truly, (Insurance Company)
Date Authorized Signature - Title

REQUEST FOR CONFIRMATION OF INSURANCE POLICIES
OTHER THAN LIFE INSURANCE1
(Date)
(Name and address of agent or insurance company)
Dear__________:
Our auditors (insert name and address of auditors) are conducting an audit of our financial statements as of (insert balance-she
and for the (insert period [e.g., year, quarter]) then ended. Please complete and furnish directly to them the following informatio
regarding our insurance coverage as of (insert balance-sheet date):
1. Insurance policy number:
2. Insurance coverage:
a. Type:
b. Amount:
c. Coinsurance:
d. Terms of coverage: from
3. Original premium amount:
4. Amount of unpaid premiums as of (insert balance-sheet date):
After completing the information requested above, please sign and date your reply in the space provided below and mail it direc
auditors in the enclosed return envelope.
Respectfully,
(Name of client)
***********************************************
TO: (insert auditor’s name)

The information completed above and furnished to you regarding the insurance coverage of (insert name of client) agrees with
records as of (insert balance-sheet date).
Signature:
Title:
Date:

to
()
()
REQUEST FOR CONFIRMATION OF ACCOUNTS PAYABLE
(Date)
(Name and address of vendor)
Dear__________:
(insert period [e.g., year, quarter]) then ended. Please confirm directly to them the amount of our liability to you as of (insert dat
is a balance due, please attach a statement of the items comprising such balance. If no balance is due, please indicate this by
the appropriate box below.
envelope.
Respectfully,
(Name of client)
***********************************************
Our records indicate that a balance of $______ was due from (insert name of client) as of (insert date), as shown in the attache
statement.
Our records indicate that no balance is due from (insert name of client) as of (insert date).
Signature:
Title:
Date:
()
()
1
REQUEST FOR CONFIRMATION OF NOTES PAYABLE
(Date)
(Creditor’s name and address)
Dear__________:
(insert period [e.g., year, quarter]) then ended. Our records show the following information regarding our note payable to you as
date)1:
1. Initial date of note (insert date)
2. Original amount of note (insert amount)
3. Unpaid principal balance (insert amount)
4. Payment intervals (insert monthly, quarterly, etc.)
5. Periodic payment required (insert amount)
6. Annual interest rate (insert rate)
7. Date interest was paid to (insert date)
9. Description of collateral (insert description; if none, insert “NONE”)
10. Description of terms (e.g., demand provisions, prepayment penalties) (insert description; if none, insert “NONE”)
Please check the appropriate response below after determining whether the information shown above is in agreement with you
If there are differences, including any direct or contingent liabilities to you not otherwise indicated above, please provide informa
sufficient detail to assist our auditors in reconciling the difference.
envelope.
Respectfully,
(Name of client)
***********************************************
The information shown above regarding the obligation from (insert name of client) agrees with our records and is correct as of (
date).
The information shown above regarding the obligation from (insert name of client) does not agree with our records as of (insert
following are exceptions and differences we have identified:
Signature:
Title:
Date:
To expedite and enhance the reply, the auditor may wish to include copies of the note, the related amortization schedule, and t
agreement.
$
%
1
2
REQUEST FOR CONFIRMATION OF MORTGAGE DEBT1
(Date)
(Name and address of creditor or trustee)
Dear_________:
(insert period [e.g., year, quarter]) then ended. Please complete and furnish directly to them the following information regarding
mortgage debt to you as of (insert date)2:
1. Initial date of note
2. Original amount
3. Unpaid principal balance
4. Payment intervals (e.g., monthly, quarterly)
5. Periodic payment required
6. Annual interest rate
7. Date interest was paid to
8. Maturity date
9. Nature of mortgage and description and address of property mortgaged:
10. Amounts paid during the period from (insert date) to (insert date) for:
a. Insurance
b. Real estate taxes
11. Amounts on deposit with you for:

a. Insurance
b. Real estate taxes
c. Other (please specify)
12. The nature of defaults, if any:
13. Description of terms (e.g., demand provisions, prepayment penalties):
Respectfully,
(Name of client)
***********************************************
The information completed above and furnished to you regarding the mortgage debt of (insert name of client) agrees with our re
of (insert date).
Signature:
Title:
Date:

This confirmation request assumes that the mortgage debt involves an escrow arrangement for insurance and real estate taxes
auditor should modify this request to agree with the circumstances of the particular mortgage debt involved.
To expedite and enhance the reply, the auditor may wish to include copies of the mortgage agreement and the related amortiza
schedule.
$
$
$
$
1
4
REQUEST FOR CONFIRMATION OF LINES OF CREDIT
(Date)
(Name and address of financial institution)
Dear___________:
then ended, we have advised our independent auditors of the information listed below3, which we believe is a complete and ac
description of our line of credit from your financial institution as of the close of business on (insert balance-sheet date). Although
not request nor expect you to conduct a comprehensive, detailed search of your records, if during the process of completing thi
confirmation additional information about other lines of credit from your financial institution comes to your attention, please inclu
information below.
The Company has available at the financial institution a line of credit totaling (insert amount), which expires on (insert date). Th
terms of the line of credit are contained in the letter dated (insert date). The related debt outstanding at the close of business at
balance-sheet date) was (insert amount).
The amount of unused credit, subject to terms of the related letter, at (insert balance-sheet date) was (insert amount).
The interest rate at the close of business on (insert balance-sheet date) was (insert interest rate).
The line of credit is secured by (insert description of collateral if applicable) and personally guaranteed by (insert names of guar
applicable).
There are no requirements for compensating balances in connection with this line of credit.
This line of credit supports the Company’s commercial paper, of which none was outstanding as of (insert balance-sheet date).
Please confirm whether the information about the line of credit presented above is correct by signing below and returning this le
directly to our independent auditors (insert name and address of auditors) in the enclosed return envelope.
Respectfully,
(Name of client)
***********************************************

The above information regarding the line of credit agrees with the records of this financial institution.4 Although we have not co
comprehensive, detailed search of our records, no information about other lines of credit have come to our attention. (Note exc
below or in an attached letter.)
Name of financial institution:
Signature:
Title:
Date:
See the confirmation letters at Section II, Items 18 and 19 (COR18 and COR19), for confirming details of contingent liabilities a
confirming compensating balances, respectively, related to agreements with financial institutions.
for the financial institution’s relationship with the client or is knowledgeable about such transactions or arrangements.
The auditor should modify the contents of this letter to include any additional details as appropriate for the specific terms of the
credit agreement (e.g., amount of commitment fees, minimum annual charges).
The confirmation reply may be modified to include comments similar to the following, if applicable:
“This confirmation does not relate to arrangements, if any, with other branches or affiliates of this financial institution. Informatio
be sought separately from such branches or affiliates with which any such arrangements might exist.”
1
3
4
5
REQUEST FOR CONFIRMATION OF CONTINGENT LIABILITIES
(Date)
Dear__________2:
then ended, we have advised our independent auditors of the information listed below,3 which we believe is a complete and ac
description of our contingent liabilities, including oral and written guarantees, with your financial institution. Although we do not
nor expect you to conduct a comprehensive, detailed search of your records, if during the process of completing this confirmatio
additional information about other contingent liabilities, including oral and written guarantees, between (insert name of client) an
financial institution comes to your attention, please include such information below.
1. Name of maker (insert name)
2. Date of note (insert date)
4. Current balance (insert amount)
5. Interest rate (insert rate)
6. Date to which interest is paid (insert date)
7. Description of collateral (insert description; if none, insert “NONE”)
8. Description of purpose of note (insert description [e.g., to finance refurbishment of production facilities])
9. Information related to oral or written guarantees is as follows4:

Please confirm whether the information about contingent liabilities presented above is correct by signing below and returning th
directly to our independent auditors (insert name and address of auditors) in the enclosed return envelope.
Respectfully,
(Name of client)
***********************************************
The above information listing contingent liabilities, including oral and written guarantees, agrees with the records of this financia
institution.5 Although we have not conducted a comprehensive, detailed search of our records, no information about other cont
liabilities, including oral and written guarantees, has come to our attention. (Note exceptions below or in an attached letter.)
Signature:
Title:
Date:
See the letters at Section II, Item 17 (COR17) (for confirming details of lines of credit) and Item 19 (COR19) (for confirming com
balances related to agreements with financial institutions).
The auditor should modify the contents of this letter to include any additional details as appropriate for the specific terms of the
liabilities.
If there are no oral or written guarantees, the following language would be appropriate:
“No additional contingent liabilities, including oral and written guarantees, exist between (insert name of client) and (insert name
financial institution).”
1
4
5
REQUEST FOR CONFIRMATION OF COMPENSATING BALANCES
(Date)
Dear__________:
then ended, we have advised our independent auditors that as of the close of business on (insert balance-sheet date), there we
compensating balance arrangements as described in our agreement dated (insert date). Although we do not request nor expec
conduct a comprehensive, detailed search of your records, if during the process of completing this confirmation additional inform
about other compensating balance arrangements between (insert name of client) and your financial institution comes to your at
please include such information below.
Withdrawal by (insert name of client) of the compensating balance was not legally restricted at (insert balance-sheet date). The
the compensating balance arrangements at (insert balance-sheet date) were3:
Compensating balances are based on the financial institution’s ledger records without adjustment for uncollected funds.
There were no changes in the compensating balance arrangements during the (insert period) ended (insert balance-sheet date
subsequently through the date of this letter.
The Company was (was not) in compliance with the compensating balance arrangements during the (insert period) ended (inse
sheet date) and subsequently through the date of this letter.
There were no sanctions, applied or imminent, by (insert name of financial institution) because of noncompliance with compens
balance arrangements.4
During the year ended (insert balance-sheet date), and subsequently through the date of this letter, no compensating balances
maintained by (insert name of client) at (insert name of financial institution) on behalf of an affiliate, director, officer, or any othe
party, and no third party maintained compensating balances at (insert name of financial institution) on behalf of (insert name of
Please confirm whether the information about compensating balances presented above is correct by signing below and returnin
letter directly to our independent auditors (insert name and address of auditors) in the enclosed return envelope.
Respectfully,
(Name of client)
***********************************************
The above information regarding the compensating balance arrangements with (insert name of financial institution) agrees with
records of this financial institution.5 Although we have not conducted a comprehensive, detailed search of our records, no infor
about other compensating balance arrangements has come to our attention. (Note exceptions below or in an attached letter.)
Signature:
Title:
Date:
See the letters at Section II, Item 17 (COR17) (for confirming details of lines of credit) and Item 18 (COR18) (for confirming con
liabilities related to agreements with financial institutions).
The terms of the compensating balance arrangements should be described in detail. The following are examples of such descr
“In support of its line of credit, the Company is expected to maintain compensating balances on deposit with the bank, which wi
10% of the line to the extent that it is not in use and an additional 10% on the portion in use.”
“The Company is expected to maintain an average compensating balance of $150,000 during the year as determined from the
ledger records without adjustment for uncollected funds.”
If the financial institution has applied sanctions during the period under audit or notified the Company that sanctions may be ap
confirmation request should be modified to include such details.
2
c.
a.
b.
c.
3
()
()
1
REQUEST FOR CONFIRMATION OF LEASE AGREEMENT1
(Date)
(Lessor’s name and address)
Dear_________:
Our auditors (insert name and address of auditors) are conducting an audit of our financial statements and would like to confirm
following terms and provisions of the lease agreement dated (insert date) between (insert name of client) and (insert name of le
regarding (insert a brief description, and address if applicable, of property under lease):
Part I
1. Lease term: from
Monthly rental amounts applicable under lease term (insert amounts and respective dates per lease agreement [e.g., “From 1/1
12/31/X2, $1,250/month,” “From 1/1/X3 to 12/31/X3, $1,375/month”])
3. Amount of security deposit: (insert amount; if none, insert “NONE”)
4. Purchase option (if none, insert “NONE”)
a. Purchase price (insert amount or description [e.g., fair value of the property at
the date the option becomes exercisable])
b. The date the purchase option becomes exercisable (insert date)
Other (insert pertinent provisions, if any, regarding purchase option)
Renewal option (if none, insert “NONE”)
Renewal period (insert dates)
Renewal amounts applicable under renewal period (insert amounts and respective dates)
Other (insert pertinent provisions, if any, regarding renewal option)
Amount of outstanding delinquent payments as of (insert balance-sheet date) (insert amount; if none, insert “NONE”)
Restrictions imposed by the lease agreement (insert a brief description of such restrictions [e.g., payment of dividends, incurring
additional debt, further leasing]; if none, insert “NONE”)
Part II
In addition to confirming the above, please provide directly to our auditors the following related information:
A description of the basis on which contingent rental payment amounts, if any, are determined (if none, please state “NONE”):
A description of any violations or defaults:
A description of any pertinent additional information that relates to the lease agreement (e.g., contingent liabilities) (if none, plea
“NONE”):
Please check the appropriate response below regarding whether the information shown in Part I above is in agreement with you
If there are differences, please provide any information in sufficient detail to assist our auditors in reconciling the difference.
Please sign and date your reply and mail it directly to our auditors in the enclosed return envelope.
Respectfully,
(Name of client)
***********************************************
The information shown in Part I above regarding the lease agreement agrees with our records and is correct as of (insert balan
date).
The information shown in Part I above regarding the lease agreement does not agree with our records and is not correct as of (
balance-sheet date). The following are exceptions and differences we have identified:
Signature:
Title:
Date:
To expedite and enhance the reply, the auditor may wish to include copies of pertinent provisions of the lease agreement. This
confirmation letter should be tailored depending on the individual circumstances. For example, if the leased property is machine
equipment, the auditor may wish to include the serial number. Therefore, the auditor should use professional judgment when de
the contents of this letter.
to
1
3
REQUEST FOR CONFIRMATION OF CAPITAL STOCK—
TRANSFER AGENT OR REGISTRAR
(Date)
(Name and address of transfer agent)
Dear_________:
Our auditors (insert name and address of auditors) are conducting an audit of our financial statements as of (insert balance-she
and for the (insert period [e.g., year, quarter]) then ended. Please complete and furnish directly to them the following informatio
regarding each class of our common and preferred stock as of (insert balance-sheet date)2:
1. Number of shares authorized
2. Number of shares issued
3. Number of shares outstanding
4. Number of shares outstanding that are registered in the name of (insert name of client)
5. Number of shares issued and outstanding to the following parties3: (List names of officers, directors, shareholders)
6. Dates and amounts deposited during the year for the payment of dividends
7. Amount of any unpaid transfer agent/registrar fees due you as of (insert balance-sheet date)
Respectfully,
(Name of client)
***********************************************
The information completed above and furnished to you regarding each class of stock of (insert name of client) agrees with our r
of (insert balance-sheet date).
Signature:
Title:
Date:
Transfer agent and registrar duties may be performed by the same agent. A transfer agent is a representative, usually a bank o
company, designated by a company to make legal transfers of stocks and bonds and, in some cases, to distribute dividends. Th
agent keeps the current stock-transfer books, ledger, and payment lists.
Any company whose stock is traded on a securities exchange is required to engage an independent registrar as a control to pre
improper issuance of stock certificates. The responsibility of an independent registrar is to make sure that stock is issued by a c
in accordance with the capital stock provisions in the corporate charter and the authorization of the board of directors. The regis
responsible for signing all newly issued stock certificates and making sure old certificates are received and canceled before a
replacement certificate is issued when there is a change in the ownership of a stock.
The auditor may wish to identify each class of stock in the confirmation request or mail separate confirmations for each class of
The auditor may wish to request confirmation of the number of shares issued to each specifically mentioned officer and director
shareholders owning more than a stated percentage of the total outstanding shares of the company.
1
a.
b.
c.
d.
6
7
a.
b.
c.
e.
11
c.
11
12
4
5
5
6
1
REQUEST FOR CONFIRMATION OF DEFINED BENEFIT PENSION PLAN INFORMATION
(Date)
(Name and address of actuary)
Dear__________:
In connection with the audit of our financial statements for the period ending (insert year end) by our independent auditors (inse
and address of auditors), please furnish them a copy of the most recent actuarial valuation report for (insert name of plan), whic
defined benefit pension plan. If a complete actuarial valuation was not prepared as of (insert date), please provide any reports o
that summarize end-of-period amounts. If the information requested below is included in the valuation report, you may refer to t
in your report rather than repeating such information.
SECTION I
Please provide a brief description of the following:
The employee group covered
The benefit provisions of the plan used in the calculation of the net periodic pension cost for the period, and the accumulated b
obligation and the projected benefit obligation at the end of the period. Please identify any such benefit provisions that had not
effect in the year. Please also provide the date of the most recent plan amendment included in your calculation. Please identify
participants or benefits excluded from the calculations, such as benefits guaranteed under an insurance or annuity contract.
The method and the amortization period, if any, used for the following:
Calculation of a market-related value of plan assets, if different from the fair value
Amortization of any transition asset or obligation
Amortization of unrecognized prior service cost
Amortization of unrecognized net gain or loss
Any substantive commitments for benefits that exceed the benefits defined by the written plan that are included in the calculatio
Determination of the value of any insurance or annuity contracts included in the assets
Nature and effect of significant plan amendments and other significant matters affecting comparability of net periodic pension c
status, and other information for the current period with that of the prior period
The following information relating to the employee census data used in calculating the benefit obligations and pension cost:
The source and nature of the data is _______ and the date as of which the census data was collected is________.
The following information concerning participants:
(1) Currently receiving payments
(2) Active with vested benefits
(3) Terminated with deferred vested benefits
(4) Active without vested benefits
(5) Other (describe)
NOTE: If information is not available for all the above categories, please indicate the categories that have been grouped and d
any group or groups of participants excluded from the above information.
Information for the following individuals contained in the census1:
Participant’s Name
or Number
SECTION II
Please provide the following information on the net periodic pension cost for the period ending on __________:
1. Service cost
2. Interest cost
3. Actual return on assets
4. Net gain (or loss) during the period deferred for later recognition
5. Amortization of net gain (or loss) from earlier periods
6. Amortization of unrecognized prior service cost
7. Amortization of the remaining unrecognized net obligation (or asset) existing at the date of the initial application of FAS-87 tra
obligation (or asset)
8. Amount of gain or loss recognized due to a settlement or curtailment

9. Net periodic pension cost (1 + 2 - 3 + 4 + 5 + 6 + 7 + 8)
10. The above measurement of the net periodic pension cost is based on the following assumptions:
a. Weighted-average discount rate
b. Weighted-average rate of compensation increase

c. Weighted-average expected long-term rate of return on plan assets
d. Please describe the basis on which the above rates were selected and whether the basis is consistent with that of the prio
Please describe the other assumptions used in the above measurement.
The calculations of the items shown in Items 1-9, are based on the following dates:
a. Asset information at
b. Census data at
c. Measurement date (must be not more than three months before the end of the last fiscal year)
d. Please describe any adjustments made to project the census data forward to the measurement date or to project the resu
calculated at an earlier date to those shown in Items 1-9.
SECTION III
Please provide the following information on the benefit obligations for disclosure in the financial statements for the period
ending________:
1. Projected benefit obligation
2. Fair value of plan assets
3. Funded status of the plan
4. Employer contributions to the plan
5. Participant contributions to the plan
6. Benefits paid
7. Accrued (or prepaid) pension cost in the company financial statements
8. The amount of any intangible asset and the amount of accumulated other comprehensive income recognized in accordance
paragraph 37 of FAS-87, as amended.
9. The amount of net periodic benefit cost recognized and the amount of change in the minimum pension liability recognized in
accordance with paragraph 37 of FAS-87, as amended.
10. The above amount of the projected benefit obligation is measured based on the following assumptions:
a. Weighted-average discount rate
b. Weighted-average rate of compensation increase
Please provide a brief description of the other assumptions used in the measurement:
The calculations of the items shown in Section III, Items 1-9, are based on the following dates:
a. Asset information at
b. Census data at
c. Measurement date (must be not more than three months before the current fiscal year end)
d. Please describe any adjustments made to project the census data forward to the measurement date or to project the resu
calculated at an earlier date to those shown in Section III, Items 1-9.
Please describe any significant events noted subsequent to the current year’s measurement date and as of the date of your rep
request, and the effects of those events, such as a large plant closing, which could materially affect the amounts shown in Sect
Items 1-9.
SECTION IV
Please provide an analysis for the period showing beginning amounts, additions, reductions, and ending amounts of the followi
Projected benefit obligation
Fair value of plan assets
Unrecognized prior service cost
Unrecognized net gain (or loss)

Net transition obligation (or asset)
SECTION V
Please provide our independent auditors with descriptions and the amounts of gains or losses from settlements, curtailments, o
termination benefits during the year, such as the following:
Purchases of annuity contracts
Lump-sum cash payments to plan participants
Other irrevocable actions that relieved the company or the plan of primary responsibility for a pension obligation and eliminates
risks related to the obligation and assets
Any events that significantly reduced the expected years of future service of employees
Any events that eliminated for a significant number of employees the accrual of defined benefits for some or all of their future se
Any special or contractual termination benefits offered to employees
SECTION VI
Was all of the information above determined in accordance with FAS-87, FAS-88, and FAS-132 (including the FASB’s “Guides
Implementation of Statements 87 and 88” and the American Academy of Actuaries’ “An Actuary’s Guide to Compliance with Sta
Financial Accounting Standards No. 87”) to the best of your knowledge?
Yes ( ) No ( ) If not, please describe any differences.
SECTION VII
Describe the nature of your relationship, if any, with the plan or the plan sponsor that may impair or appear to impair the objecti
work.
After completing the information requested above, please mail it directly to our auditors in the enclosed return envelope.
Respectfully,
(Name of client)
***********************************************
The information completed above and furnished to you agrees with our records.
Signature:
Title:
Date:
The auditor should select information from the company’s records to compare with the census data used by the actuary. The au
should complete the participant name or number for each participant he or she selects, and the actuary should complete the re
information for each participant selected. In addition, the auditor may wish to have the actuary select certain employees and rel
census data from his or her files to compare with the company’s records.
Number
of Compens
Persons ation
(if
applicable
)
Date
Hired or
Years of
Age or Service
Birth Date Sex Salary
$
$
$
$
$
$
$
$
$
%
%
%
$
%
1
2
3
4
5
MANAGEMENT HAS PROVIDED DETAILS OF LEGAL ACTIONS
(Date)
(Name and address of lawyer)
Dear__________:
In connection with an audit of our financial statements as of (insert balance-sheet date) and for the (insert period) then ended, w
prepared and furnished to our independent auditors (insert name and address of auditors) a description and evaluation of certa
contingencies, including those set forth below, involving matters with respect to which you have been engaged and to which yo
devoted substantive attention on behalf of the Company (and any of its subsidiaries, if applicable) in the form of legal consultati
representation. These contingencies are regarded by us as material for this purpose if they involve claims amounting to more th
materiality dollar amount), individually or in the aggregate.
Pending or Threatened Litigation, Asserted Claims, and Assessments
[The client should prepare a list describing all material pending or threatened litigation, asserted claims, and assessments. Ord
such information would include (1) the nature of the matter, including (a) the proceedings, (b) the amount of monetary damages
or if no amounts are indicated, a statement to that effect, (c) the extent to which potential damages are covered by insurance, a
objectives sought by the plaintiff other than monetary or other damages, if any; (2) the progress of the matter to date; (3) how
management is responding or intends to respond (e.g., to contest the case vigorously or to seek an out-of-court settlement); an
evaluation of the likelihood of an unfavorable outcome and an estimate, if one can be made, of the amount or range of potentia
Please furnish to our auditors such explanation, if any, that you consider necessary to supplement the foregoing information, in
explanation of those matters for which your views differ from those stated, and an identification of the omission of any pending
threatened litigation, claims, and assessments, or a statement that the list of such matters is complete. If you cannot express an
on the outcome of certain litigation, please so state, together with your reasons for that position.
Unasserted Claims and Assessments (considered by us to be probable of assertion, and, if asserted, to have at least a reasona
possibility of an unfavorable outcome)2
[The client should prepare a list describing all such material contingencies. Ordinarily, management’s information would include
nature of the matter, (2) how management intends to respond if the claim is asserted, and (3) an evaluation of the likelihood of
unfavorable outcome and an estimate, if one can be made, of the amount or range of potential loss.]
Please furnish to our auditors an explanation, if any, that you consider necessary to supplement the foregoing information, inclu
explanation of those matters for which your views differ from those stated.
We understand that whenever, in the course of performing legal services for us with respect to a matter recognized to involve a
unasserted possible claim or assessment that may call for financial statement disclosure, you have formed a professional conc
we should disclose or consider disclosure concerning such possible claim or assessment, as a matter of professional responsib
you will so advise us and will consult with us concerning the question of such disclosure and the applicable requirements of Sta
Financial Accounting Standards No. 5 (excerpts of which can be found in the ABA’s Auditor’s Letter Handbook). Please specific
confirm to our auditors that our understanding is correct.
We have represented to and assured our auditors that the unasserted claims and assessments mentioned in this letter include
unasserted claims and assessments that you have advised us are probable of assertion and must be disclosed in accordance w
Statement of Financial Accounting Standards No. 5.
Other Matters3
[The auditor may request the client to inquire about additional matters (e.g., specified information on certain contractually assum
obligations of the Company, such as guarantees of indebtedness of others).]
Response4
Your response should include matters that existed as of (insert balance-sheet date) and additional information about those mat
matters that arose during the period from that date to the effective date of your response.
Please specifically identify the nature of and reasons for any limitation on your response.
We expect to have our audit completed about (insert expected completion date). Therefore, we appreciate receiving your reply
date with a specified effective date no earlier than (insert date).5
Your response will not be quoted or referred to in the Company’s financial statements without prior consultation with you.
Please send your response directly to our auditors, with a copy to me.
Respectfully,
(Name of client)
This letter generally should be used if the client prepares an audit inquiry letter that includes a list describing and evaluating all
pending or threatened litigation, asserted claims, and assessments. Therefore, the letter is sent to the client legal counsel to ob
corroboration of information furnished by management to the auditor. If the client does not furnish the auditor with this informati
requests that legal counsel prepare such a list, the letter at Section II, Item 24 (COR24), should be used.
This letter assumes that the client specifies certain unasserted claims and assessments. If management believes that there are
unasserted claims or assessments to be specified to the lawyer for comment that are probable of assertion and that, if asserted
have a reasonable possibility of an unfavorable outcome, the unasserted claims and assessments section should be replaced i
entirety by the following:
“Unasserted Claims and Assessments”
We have represented to our auditors that there are no unasserted possible claims or assessments that you have advised us ar
of assertion and must be disclosed in accordance with Statement of Financial Accounting Standards No. 5 (excerpts of which c
found in the ABA’s Auditor’s Letter Handbook).
Financial Accounting Standards No. 5. Please specifically confirm to our auditors that our understanding is correct.”
The auditor may wish to confirm with legal counsel the amount owed by the client for legal services. Accordingly, language sim
following would be appropriate:
“Please indicate the amount owed to you for services and expenses, billed and unbilled, as of (insert balance-sheet date).”
In some cases, to emphasize the preservation of the attorney-client privilege or the attorney work-product privilege, clients have
language similar to the following in the audit inquiry letter to legal counsel:
“We do not intend that either our request to you to provide information to our auditor or your response to our auditor should be c
in any way to constitute a waiver of the attorney-client privilege or the attorney work-product privilege.”
The explanatory language about the attorney-client privilege or the attorney work-product privilege does not result in a limitation
scope of the audit. Such language simply makes explicit what has always been implicit: that the client’s request does not consti
expression of intent to waive such privileges.
Ordinarily, a two-week period should be allowed between the specified effective date of the lawyer’s response and the expected
completion date of the audit.
1
4
1
2
3
5
ILLUSTRATIVE AUDIT INQUIRY LETTER TO CLIENT LEGAL COUNSEL IF MANAGEMENT HAS NOT PROVIDED DETAILS
LEGAL ACTIONS
(Date)
(Name and address of lawyer)
Dear__________:
In connection with an audit of our financial statements as of (insert balance-sheet date) and for the (insert period) then ended, p
furnish to our independent auditors (insert name and address of auditors) the following information concerning certain continge
involving matters as to which you have devoted substantive attention on behalf of the Company (and any of its subsidiaries, if a
in the form of legal consultation or representation. These contingencies are regarded by us as material for this purpose if they in
claims amounting to more than (insert materiality dollar amount), individually or in the aggregate.
Pending or Threatened Litigation, Asserted Claims, and Assessments
Please furnish to our auditors a description and evaluation of all pending or threatened litigation, asserted claims, and assessm
response should include the following:
The nature of each matter, including (a) the proceedings, (b) the amount of monetary damages sought, or if no amounts are ind
statement to that effect, (c) the extent to which potential damages are covered by insurance, and (d) the objectives sought by th
other than monetary or other damages.
The progress of each matter to date.
The way we are responding or intend to respond (e.g., to contest the case vigorously or to seek an out-of-court settlement).
An evaluation of the likelihood of an unfavorable outcome and an estimate, if one can be made, of the amount or range of pote
you cannot express an opinion on the outcome of certain litigation, please so state, together with your reasons for that position.
Unasserted Claims and Assessments (considered by us to be probable of assertion, and that, if asserted, would have at least a
reasonable possibility of an unfavorable outcome)2
[The client should prepare a list describing all such material contingencies. Ordinarily, management’s information would include
nature of the matter, (2) how management intends to respond if the claim is asserted, and (3) an evaluation of the likelihood of
unfavorable outcome and an estimate, if one can be made, of the amount or range of potential loss.]
Please furnish to our auditors an explanation, if any, that you consider necessary to supplement the foregoing information, inclu
explanation of those matters as to which your views may differ from those stated.
Financial Accounting Standards No. 5 (excerpts of which can be found in the ABA’s Auditor’s Letter Handbook). Please specific
confirm to our auditors that our understanding is correct.
We have represented to and assured our auditors that the unasserted claims and assessments mentioned in this letter include
unasserted claims and assessments that you have advised us are probable of assertion and must be disclosed in accordance w
Statement of Financial Accounting Standards No. 5.
Other Matters3
[The auditor may request the client to inquire about additional matters (e.g., specified information on certain contractually assum
obligations of the Company, such as guarantees of indebtedness of others).]
Response4
Your response should include matters that existed as of (insert balance-sheet date) and additional information about those mat
matters that arose during the period from that date to the effective date of your response.
Please specifically identify the nature of and reasons for any limitation on your response.
We expect to have our audit completed about (insert expected completion date). Therefore, we appreciate receiving your reply
date with a specified effective date no earlier than (insert date).5
Your response will not be quoted or referred to in the Company’s financial statements without prior consultation with you.
Please send your response directly to our auditors, with a copy to me.
Respectfully,
(Name of client)
This letter generally should be used if the client has not included a list describing and evaluating all material pending or threaten
litigation, asserted claims, and assessments. If the client has prepared and furnished the auditor with such information, the lette
Section II, Item 23 (COR23), should be used.
This letter assumes that the client specifies certain unasserted claims and assessments. If management believes that there are
unasserted claims or assessments to be specified to the lawyer for comment that are probable of assertion and that, if asserted
have a reasonable possibility of an unfavorable outcome, the unasserted claims and assessments section should be replaced i
entirety by the following:
“Unasserted Claims and Assessments

We have represented to our auditors that there are no unasserted possible claims or assessments that you have advised us ar
of assertion and must be disclosed in accordance with Statement of Financial Accounting Standards No. 5 (excerpts of which c
found in the ABA’s Auditor’s Letter Handbook).
Financial Accounting Standards No. 5. Please specifically confirm to our auditors that our understanding is correct.”
The auditor may wish to confirm with legal counsel the amount owed by the client for legal services. Accordingly, language sim
following would be appropriate:
“Please indicate the amount owed to you for services and expenses, billed and unbilled, as of (insert balance-sheet date).”
In some cases, to emphasize the preservation of the attorney-client privilege or the attorney work-product privilege, clients have
language similar to the following in the audit inquiry letter to legal counsel:
“We do not intend that either our request to you to provide information to our auditor or your response to our auditor should be c
in any way to constitute a waiver of the attorney-client privilege or the attorney work-product privilege.”
The explanatory language about the attorney-client privilege or the attorney work-product privilege does not result in a limitation
scope of the audit. Such language simply makes explicit what has always been implicit: that the client’s request does not consti
expression of intent to waive such privileges.
Ordinarily, a two-week period should be allowed between the specified effective date of the lawyer’s response and the expected
completion date of the audit.
1
4
1
4
COMMUNICATION TO THE CLIENT OF REPORTABLE CONDITIONS—REPORT DOES NOT INCLUDE A STATEMENT ABO
WHETHER ANY OF THE REPORTABLE CONDITIONS IDENTIFIED ARE MATERIAL WEAKNESSES
To_________2:
In planning and performing our audit of the financial statements of (insert name of client) for the year ended (insert date), we co
its internal control to determine our auditing procedures for the purpose of expressing our opinion on the financial statements a
provide assurance on internal control. However, we noted certain matters involving the internal control and its operation that we
to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable c
involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control that, i
judgment, could adversely affect the organization’s ability to record, process, summarize, and report financial data consistent w
assertions of management in the financial statements.
[Insert description of the reportable conditions noted.]
This report is intended solely for the information and use of the audit committee (board of directors, board of trustees, or owner
managed enterprises), management, and others within the organization (or specified regulatory agency)3 and is not intended to
should not be used by anyone other than these specified parties.
(Signature of auditor)
Date4
This type of communication is appropriate when the auditor issues a report on reportable conditions but does not choose to sep
identify and communicate material weaknesses. Note that reportable conditions include material weaknesses, and therefore, th
not required to separately identify and communicate material weaknesses. However, the auditor may choose, or may be reques
client, to separately identify and communicate those reportable conditions that are considered material weaknesses; if such is t
the auditor should use the report illustrated at Section II, Item 27 (COR27).
Reportable conditions may be discovered during various phases of the audit engagement, including the evaluation of internal c
tests of the financial statement balances. An audit is not structured to identify all reportable conditions. However, once discover
reportable conditions should be communicated, preferably in writing, to the audit committee or to individuals with a level of auth
responsibility equivalent to an audit committee in organizations that do not have one (e.g., board of directors, board of trustees,
in an owner-managed entity, or others who may have engaged the auditor).
The auditor should address this communication to the audit committee or to individuals within the organization with responsibilit
equivalent to an audit committee, or others who may have engaged the auditor.
If governmental regulations require that the report be prepared, the report may contain a reference to the regulatory agency.
The auditor should date this communication with the same date as the auditor’s report.
1
2
4
COMMUNICATION TO THE CLIENT OF REPORTABLE CONDITIONS—REPORT INCLUDES A STATEMENT THAT NONE O
REPORTABLE CONDITIONS IDENTIFIED ARE MATERIAL WEAKNESSES1
To__________:2
provide assurance on the internal control. However, we noted certain matters involving the internal control and its operation tha
consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Rep
conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal co
in our judgment, could adversely affect the organization’s ability to record, process, summarize, and report financial data consis
the assertions of management in the financial statements.
[Insert description of the reportable conditions noted.]
A material weakness is a reportable condition in which the design or operation of one or more of the internal control component
reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation
financial statements being audited may occur and not be detected within a timely period by employees in the normal course of
their assigned functions.
Our consideration of internal control would not necessarily disclose all matters in internal control that might be reportable condit
accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses as def
above. However, none of the reportable conditions described above is believed to be a material weakness.
Date4
This type of communication is appropriate when the auditor (1) issues a report on reportable conditions and chooses, or is requ
the client, to separately identify and communicate whether any of the reportable conditions are considered material weaknesse
determines that the reportable conditions identified are not considered material weaknesses.
If the auditor determines that one or more of the reportable conditions identified are material weaknesses, he or she should use
illustrated at Section II, Item 27 (COR27).
The auditor may wish, or may be requested by the client, to issue a written report on material weaknesses separate from the re
reportable conditions. In this case, the auditor should use the reports illustrated at Section II, Items 28 (COR28) and 29 (COR29
1
2
4
COMMUNICATION TO THE CLIENT OF REPORTABLE CONDITIONS—REPORT INCLUDES A STATEMENT THAT SOME O
REPORTABLE CONDITIONS IDENTIFIED ARE MATERIAL WEAKNESSES
To__________:
provide assurance on the internal control. However, we noted certain matters involving the internal control and its operation tha
consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Rep
conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal co
in our judgment, could adversely affect the organization’s ability to record, process, summarize, and report financial data consis
the assertions of management in the financial statements.
[Insert description of the reportable conditions noted, none of which is deemed to be material weaknesses; the ones deemed to
material weaknesses should be described below.]
A material weakness is a reportable condition in which the design or operation of one or more of the internal control component
reduce to a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation
financial statements being audited may occur and not be detected within a timely period by employees in the normal course of
their assigned functions.
Our consideration of internal control would not necessarily disclose all matters in internal control that might be reportable condit
accordingly, would not necessarily disclose all reportable conditions that are also considered to be material weaknesses as def
above. However, we noted the following reportable conditions that we believe to be material weaknesses:
[Insert description of the reportable conditions noted that are deemed to be material weaknesses.]
Date4
This type of communication is appropriate when the auditor (1) issues a report on reportable conditions and chooses, or is requ
the client, to separately identify and communicate whether any of the reportable conditions are considered material weaknesse
determines that the reportable conditions identified are deemed to be material weaknesses.
If the auditor determines that none of the reportable conditions identified are deemed to be material weaknesses, he or she sho
the report illustrated at Section II, Item 26 (COR26).
The auditor may wish, or may be requested by the client, to issue a written report on material weaknesses separate from the re
reportable conditions. In this case, the auditor should use the reports illustrated at Section II, Items 28 (COR28) and 29 (COR29
1
4
REPORT ON MATERIAL WEAKNESSES SEPARATE FROM REPORT ON REPORTABLE CONDITIONS—NONEXISTENCE
MATERIAL WEAKNESSES
To__________:
provide assurance on the internal control. Our consideration of internal control would not necessarily disclose all matters in inte
that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A ma
weakness is a reportable condition in which the design or operation of one or more of the internal control components does not
a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the fin
statements being audited may occur and not be detected within a timely period by employees in the normal course of performin
assigned functions. However, we noted no matters involving internal control and its operation that we consider to be material w
as defined above.
Date4
This type of communication is appropriate when the auditor (1) chooses, or is requested by the client, to issue a written report o
weaknesses separate from the report on reportable conditions and (2) does not identify any material weaknesses during the au
auditor identifies material weaknesses during the audit and reports on them separately from the report on reportable conditions
auditor should use the report illustrated at Section II, Item 29 (COR29).
1
4
REPORT ON MATERIAL WEAKNESSES SEPARATE FROM REPORT ON REPORTABLE CONDITIONS—MATERIAL WEAK
IDENTIFIED1
To__________:2
provide assurance on the internal control. Our consideration of internal control would not necessarily disclose all matters in inte
that might be material weaknesses under standards established by the American Institute of Certified Public Accountants. A ma
weakness is a reportable condition in which the design or operation of one or more of the internal control components does not
a relatively low level the risk that misstatements caused by error or fraud in amounts that would be material in relation to the fin
statements being audited may occur and not be detected within a timely period by employees in the normal course of performin
assigned functions. However, we noted the following matters involving the internal control and its operation that we consider to
material weaknesses as defined above.
[Insert description of the material weaknesses noted during the audit.]
Date4
This type of communication is appropriate when the auditor (1) chooses, or is requested by the client, to issue a written report o
weaknesses separate from the report on reportable conditions and (2) identifies material weaknesses during the audit.
1
4
COMMUNICATION WITH AUDIT COMMITTEE OR ITS EQUIVALENT1
To
We have audited the financial statements of (insert name of client) as of and for the year ended (insert date), and have issued o
thereon dated (insert date). Professional standards require that we advise you of the following matters relating to our audit.
Our Responsibility under Generally Accepted Auditing Standards2
Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable assurance ab
whether the financial statements are free of material misstatement. An audit in accordance with generally accepted auditing sta
does not provide absolute assurance about, or guarantee the accuracy of, the financial statements. Because of the concept of
assurance and because we did not perform a detailed examination of all transactions, there is an inherent risk that material erro
or illegal acts, may exist and not be detected by us.
Professional standards also require that we obtain a sufficient understanding of the Company’s internal control to plan the audit
such understanding is required for the purpose of determining our audit procedures and not to provide any assurance concernin
internal control. We have provided our comments regarding reportable conditions and other matters noted during our audit in a
letter to you dated (insert date).
Significant Accounting Policies
Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting p
adopted by (insert name of company) is included in Note [X] to the financial statements. There have been no initial selection of
policies and no changes in significant accounting policies or their application during (insert year). No matters have come to our
that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusua
transactions and (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of au
guidance or consensus.
Management Judgments and Accounting Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are based on management
judgments. Those judgments are normally based on knowledge and experience about past and current events and assumption
future events. Certain accounting estimates are particularly sensitive because of their significance to the financial statements an
because of the possibility that future events affecting them may differ markedly from management’s current judgments.
The most sensitive accounting estimates affecting the financial statements are [describe]:
Management’s estimate of the (describe the accounting estimate) is based on (describe the process used by management and
for the estimate). We evaluated the key factors and assumptions used to develop the (describe the accounting estimate) and de
that it is reasonable in relation to the basic financial statements taken as a whole.
Audit Adjustments3
For purposes of this communication, professional standards define an audit adjustment, whether or not recorded by the Compa
proposed correction of the financial statements that, in our judgment, may not have been detected except through the audit pro
performed. These adjustments may include those proposed by us but not recorded by the Company that could potentially caus
financial statements to be materially misstated, even though we have concluded that the adjustments are not material to the cu
We did not propose any audit adjustments that, in our judgment, could have a significant effect, either individually or in the aggr
the entity’s financial reporting process.
Other Information in Documents Containing Audited Financial Statements
Pursuant to professional standards, our responsibility as auditors for other information in documents containing the Company’s
financial statements does not extend beyond the financial information identified in the audit report, and we are not required to p
procedures to corroborate such other information. However, in accordance with such standards, we have:
[Describe the procedures performed on such other information, such as reading the information and considering whether such
information, or the manner of its presentation, was materially inconsistent with its presentation in the financial statements.]
Our responsibility also includes communicating to you any information which we believe is a material misstatement of fact. Noth
to our attention that caused us to believe that such information, or its manner of presentation, is materially inconsistent with the
information, or manner of its presentation, appearing in the financial statements.
Disagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolve
satisfaction, concerning a financial accounting, reporting, or auditing matter which could be significant to the Company’s financi
statements or the auditor’s report. No such disagreements arose during the course of the audit.
Consultation with Other Accountants
Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing an
accounting matters.
Major Issues Discussed with Management Prior to Retention
We did not discuss any major issues with management regarding the application of accounting principles and auditing standard
resulted in a condition to our retention as the Company’s auditors.
Difficulties Encountered in Performing The Audit
We encountered no serious difficulties in dealing with management relating to the performance of the audit.
[OR]
We experienced significant difficulties with management relating to the performance of the audit. Although we received full coop
management and believe that we were given direct and unrestricted access to the Company’s officers and senior management
difficulties related to (1) failure of Company accounting personnel to prepare audit schedules as initially agreed to, and (2) unre
delays by management in permitting the commencement of the audit.
This report is intended solely for the information and use of the audit committee, board of directors, and management of (insert
client) and is not intended to be and should not be used by anyone other than these specified parties.
Date4
This type of communication is required to be followed for (1) entities that have an audit committee or that have otherwise forma
designated oversight of the financial reporting process to a group equivalent to an audit committee (such as a finance committe
budget committee), and (2) all SEC engagements. In addition, in connection with each SEC engagement, the auditor should dis
the audit committee his or her judgments about the quality, not just the acceptability, of the entity’s accounting principles as app
financial reporting.
This section should be included in all such letters to audit committees. Each of the remaining sections can be omitted when it is
applicable.
The auditor is required to inform the audit committee about uncorrected misstatements aggregated by the auditor during the cu
engagement and pertaining to the latest period presented that were determined by management to be immaterial, both individu
the aggregate, to the financial statements. The presentation to the audit committee should be similar to the summary of uncorre
misstatements included in, or attached to, the management representations letter obtained in connection with the audit; see the
Illustrative Management Representation Letter at COR02. If the auditor proposed audit adjustments that management did not re
paragraph such as the following should be added:
Also, the attached schedule summarizes uncorrected financial statement misstatements which management determined that th
are immaterial, both individually and in the aggregate, to the financial statements taken as a whole.
SAS-61 (AU 380) (Communication with Audit Committees) requires that this communication be made on a “timely basis.”
(Name of audit committee or its equivalent):
ILLUSTRATIVE CLIENT CONSENT AND ACKNOWLEDGMENT LETTER
(Date)
ABC Enterprises
(Address)
You have given your consent to allow (name of successor CPA firm), as successor independent auditors for ABC Enterprises, a
our working papers for our audit of the (insert date), financial statements of ABC Enterprises. You also have given your consen
respond fully to (name of successor CPA firm) inquiries. You understand and agree that the review of our working papers is und
solely for the purpose of obtaining an understanding about ABC Enterprises and certain information about our audit to assist (n
successor CPA firm) in planning the audit of the (insert date) financial statements of ABC Enterprises.
Please confirm your agreement with the foregoing by signing and dating a copy of this letter and returning it to us.
Attached is the form of the letter we will furnish (name of successor CPA firm) regarding the use of the working papers.
Very truly yours,
(Predecessor Auditor)
By:
*********************************************************
Accepted:
ABC Enterprises
By:
Date:
ILLUSTRATIVE SUCCESSOR AUDITOR ACKNOWLEDGMENT LETTER
(Date)
(Successor Auditor)
(Address)
We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the Dec
20X1, financial statements of ABC Enterprises (ABC). We rendered a report on those financial statements and have not perform
audit procedures subsequent to the audit report date. In connection with your audit of ABC’s 20X2 financial statements, you ha
requested access to our working papers prepared in connection with that audit. ABC has authorized our firm to allow you to rev
working papers.
Our audit, and the working papers prepared in connection therewith, of ABC’s financial statements were not planned or conduc
contemplation of your review. Therefore, items of possible interest to you may not have been specifically addressed. Our use o
professional judgment and the assessment of audit risk and materiality for the purpose of our audit means that matters may hav
that would have been assessed differently by you. We make no representation as to the sufficiency or appropriateness of the in
in our working papers for your purposes.
We understand that the purpose of your review is to obtain information about ABC and our 20XX audit results to assist you in p
your 20XX audit of ABC. For that purpose only, we will provide you access to our working papers that relate to that objective.
Upon request, we will provide copies of those working papers that provide factual information about ABC. You agree to subject
copies or information otherwise derived from our working papers to your normal policy for retention of working papers and prote
client confidential information. Furthermore, in the event of a third-party request for access to your working papers prepared in c
with your audits of ABC, you agree to obtain our permission before voluntarily allowing any such access to our working papers
information otherwise derived from our working papers, and to obtain on our behalf any releases that you obtain from such third
You agree to advise us promptly and provide us a copy of any subpoena, summons, or other court order for access to your wor
papers that include copies of our working papers or information otherwise derived therefrom.
Please confirm your agreement with the foregoing by signing and dating a copy of this letter and returning it to us.
Very truly yours,
(Predecessor Auditor)
By:
******************************************************
Accepted:
(Successor Auditor)
By:
Date:
1
ILLUSTRATIVE UPDATING MANAGEMENT REPRESENTATION LETTER
(Date)
To (Auditor)
In connection with your audit(s) of the (identify the financial statements, e.g., balance sheet, statement of operations, and state
cash flows) of (name of entity) as of (dates) and for the (periods) then ended, for the purpose of expressing an opinion as to wh
(consolidated) financial statements present fairly, in all material respects, the financial position, results of operations, and cash
(name of entity) in conformity with accounting principles generally accepted in the United States of America, you were previous
with a representation letter under date of (date of previous representation letter). No information has come to our attention that
cause us to believe that any of those previous representations should be modified.
To the best of our knowledge and belief, no events have occurred subsequent to (date of latest balance sheet reported on by th
and through the date of this letter that would require adjustment to or disclosure in the aforementioned financial statements1.
(Name of Chief Executive Officer and Title)
(Name of Chief Financial Officer and Title)
If matters exist that should be disclosed to the auditor, they should be indicated by listing them following the representation. For
if an event subsequent to the date of the balance sheet has been disclosed in the financial statements, the final paragraph coul
modified as follows:
“To the best of our knowledge and belief, except as discussed in Note [X] to the financial statements, no events have occurred.
ILLUSTRATIVE REPRESENTATION LETTER FROM SUCCESSOR AUDITOR TO PREDECESSOR AUDITOR
(Prepared on successor auditor’s letterhead)
(Date)
To (Successor Auditor)
In connection with the reissuance of your report on the financial statements of [client’s name] for the year ended [date], which s
are to be included comparatively with similar statements for the year ended [date], we make the following representations.
We have audited, in accordance with auditing standards generally accepted in the United States of America, the balance sheet
name] as of [balance-sheet date] and the related statements of income, retained earnings, and cash flows for the year then end
procedures in connection with the engagement did not disclose any events or transactions subsequent to [predecessor’s balan
date] which, in our opinion, would have a material effect upon the financial statements, or which would require disclosure in the
the financial statements of [client’s name] for the year then ended.
Should anything come to our attention prior to the date our report is issued which, in our judgment, would have a material effec
financial statements covered by your report, we shall notify you promptly.
Very truly yours,
[Successor Auditor’s Signature]

AUDITOR'S COMMUNICATION TO CLIENT WHEN THE AUDITOR MAY BE REQUIRED BY LAW, REGULATION, OR AUDIT
CONTRACT TO PROVIDE ACCESS TO THE WORKING PAPERS
(Date)
(Name and Address of Client)
The working papers for this engagement are the property of [name of auditor] and constitute confidential information. However,
be requested to make certain working papers available to [name of regulator] pursuant to authority given to it by law or regulatio
requested, access to such working papers will be provided under the supervision of [name of auditor] personnel. Furthermore, o
we may provide photocopies of selected working papers to [name of regulator]. The [name of regulator] may intend, or decide,
distribute the photocopies or information contained therein to others, including other governmental agencies.
(Firm Signature)
Agreed and acknowledged by:
______________________
(Name and Title)
______________________
(Date)
AUDITOR’S COMMUNICATION TO CLIENT WHEN THE AUDITOR IS NOT REQUIRED BY LAW, REGULATION, OR AUDIT
CONTRACT TO PROVIDE ACCESS TO THE WORKING PAPERS
(Date)
(Name and Address of Client)
The working papers for this engagement are the property of [name of auditor] and constitute confidential information. However,
been requested to make certain working papers available to [name of regulator] for [describe the regulator’s basis for its reques
to such working papers will be provided under the supervision of [name of auditor] personnel. Furthermore, on request, we may
photocopies of selected working papers to [name of regulator].
You have authorized [name of auditor] to allow [name of regulator] access to the working papers in the manner discussed abov
confirm your agreement to the above by signing below and returning to [name of auditor, address].
(Firm Signature)
Agreed and acknowledged by:
______________________
(Name and Title)
______________________
(Date)
AUDITOR’S LETTER TO REGULATOR PRIOR TO ALLOWING A REGULATOR ACCESS TO THE WORKING PAPERS
(Date)
(Name and Address of Regulatory Agency)
Your representatives have requested access to our working papers in connection with our audit of the December 31, 20XX fina
statements of (name of client). It is our understanding that the purpose of your request is (state purpose: for example, “to facilit
regulatory examination”).1
Our audit of (name of client) December 31, 20XX financial statements was conducted in accordance with auditing standards ge
accepted in the United States of America 2, the objective3 of which is to form an opinion as to whether the financial statements
the responsibility and representations of management, present fairly, in all material respects, the financial position, results of op
and cash flows in conformity with accounting principles generally accepted in the United States of America.4 Under generally a
auditing standards, we have the responsibility, within the inherent limitations of the auditing process, to design our audit to prov
reasonable assurance that errors and fraud that have a material effect on the financial statements will be detected, and to exerc
care in the conduct of our audit. The concept of selective testing of the data being audited, which involves judgment both as to
number of transactions to be audited and as to the areas to be tested, has been generally accepted as a valid and sufficient ba
auditor to express an opinion on financial statements. Thus, our audit, based on the concept of selective testing, is subject to t
risk that material errors or fraud, if they exist, would not be detected. In addition, an audit does not address the possibility that m
errors or fraud may occur in the future. Also, our use of professional judgment and the assessment of materiality for the purpos
audit means that matters may have existed that would have been assessed differently by you.
The working papers were prepared for the purpose of providing the principal support for our report on (name of client) Decembe
20XX financial statements and to aid in the conduct and supervision of our audit. The working papers document the procedure
performed, the information obtained and the pertinent conclusions reached in the engagement. The audit procedures that we p
were limited to those we considered necessary under generally accepted auditing standards5 to enable us to formulate and exp
opinion on the financial statements6 taken as a whole. Accordingly, we make no representation as to the sufficiency or approp
for your purposes, of either the information contained in our working papers or our audit procedures. In addition, any notations,
comments, and individual conclusions appearing on any of the working papers do not stand alone, and should not be read as a
on any individual amounts, accounts, balances or transactions.
Our audit of (name of client) December 31, 20XX financial statements was performed for the purpose stated above and has no
planned or conducted in contemplation of your (state purpose: for example, “regulatory examination”) or for the purpose of asse
(name of client) compliance with laws and regulations.7 Therefore, items of possible interest to you may not have been specific
addressed. Accordingly, our audit and the working papers prepared in connection therewith, should not supplant other inquiries
procedures that should be undertaken by the (name of regulatory agency) for the purpose of monitoring and regulating the fina
of the (name of client). In addition, we have not audited any financial statements of (name of client) since (date of audited bala
referred to in the first paragraph above) nor have we performed any audit procedures since (date), the date of our auditor’s repo
significant events or circumstances may have occurred since that date.
The working papers constitute and reflect work performed or information obtained by (name of auditor) in its capacity as indepe
auditor for (name of client). The documents contain trade secrets and confidential commercial and financial information of our f
(name of client) that is privileged and confidential, and we expressly reserve all rights with respect to disclosures to third parties
Accordingly, we request confidential treatment under the Freedom of Information Act or similar laws and regulations8 when req
made for the working papers or information contained therein or any documents created by the (name of regulatory agency) co
information derived therefrom. We further request that written notice be given to our firm before distribution of the information in
working papers (or photocopies thereof) to others, including other governmental agencies, except when such distribution is req
law or regulation.
Note: If it is expected that photocopies will be requested, add the following:
Any photocopies of our working papers we agree to provide you will be identified as “Confidential Treatment Requested by (nam
auditor, address, telephone number).”
(Firm signature)
_________________
1 If the auditor is not required by law, regulation, or audit contract to provide a regulator access to the working papers but other
intends to provide such access, the letter should include a statement that: “Management of (name of client) has authorized us t
you access to our working papers for (state purpose).”
2 The auditor should appropriately modify this letter when the audit has been performed in accordance with generally accepted
standards and also in accordance with additional auditing requirements specified by a regulatory agency (for example, the requ
specified in Government Auditing Standards issued by the Comptroller General of the United States).
3 In an audit performed in accordance with the Single Audit Act of 1984, and certain other federal audit requirements, an additio
objective of the audit is to assess compliance with laws and regulations applicable to federal financial assistance. Accordingly,
situations, the above letter should be modified to include the additional objective.
4 If the financial statements have been prepared in conformity with regulatory accounting practices, the phrase “financial positio
of operations and cash flows in conformity with generally accepted accounting principles” should be replaced with appropriate w
such as, in the case of an insurance company, the “admitted assets, liabilities…of the XYZ Insurance Company in conformity w
accounting practices prescribed or permitted by the state of…insurance department.”
5 Refer to footnote 2.
8 This illustrative paragraph may not in and of itself be sufficient to gain confidential treatment under the rules and regulations o
regulatory agencies. The auditor should consider tailoring this paragraph to the circumstances after consulting the regulations
applicable regulatory agency and, if necessary, consult with legal counsel regarding the specific procedures and requirements t
confidential treatment.
3
7
8
10
11
12
13
8
9
10
11
CLIENT ACCEPTANCE AND RETENTION EVALUATION FORM
CLIENT NAME:
DATE OF FINANCIAL STATEMENTS:
Instructions
This form should be used to document the screening of prospective new clients or for evaluating the retention of existing clients
is only a guide, and the auditor should exercise professional judgment to determine how the form should be modified by revisin
questions listed or adding questions where appropriate. This form should be updated at least annually, and the engagement ex
should review it to determine whether to retain or terminate the client.
SECTION I—BACKGROUND AND BASIC INFORMATION
1. Entity legal name:
2. Key contact name and title:
Entity address, telephone number, fax number, e-mail address, and web site address:
4. Type of entity (e.g., partnership, Subchapter S, public):
5. Fiscal year end:
Principal stockholders, officers, and directors:
Name
Describe how contact was initially established:

Entity’s attorneys:
Name
Address
Entity’s banking relationships:
Name
Address
Describe the nature of the entity’s business and products or services provided, including any economic dependence or concent
Explain management’s reasons for changing CPA firms and how frequently the entity has changed CPA firms.
Describe what services and reports are requested and their required completion dates.
Describe why the entity desires audited financial statements and what parties may potentially rely on them.
SECTION II—ENTITY FINANCIAL CONDITION AND NATURE OF TRANSACTIONS
Any “Yes” answers to the following questions indicate a higher level of risk than normal, and the auditor should expand on thos
1. Is cash flow or working capital inadequate to meet operating requirements, debt payments, dividends, etc.?
2. Are there significant demands for new debt or equity capital?
3. Have loan agreement covenants been waived or violated?
4. Is there any doubt about the ability of the entity to continue in existence?
5. Have sales, gross margins, or income trends deteriorated significantly in recent years?
6. Is the entity’s industry unfavorable, unusually litigious, or considered risky (e.g., construction companies)?
7. Does the entity engage in significant related-party transactions?
8. Does the entity usually engage in significant unusual transactions during the year or near year-end?
9. Is there evidence of complex accounting issues or transactions that are difficult to audit?
10. Is financing by third parties contingent on the entity’s meeting certain minimum financial ratios?
SECTION III—MANAGEMENT INTEGRITY AND BUSINESS RISK EXPOSURE
1. Has the entity or any of its principals ever been charged with violations of any federal, state, or local laws?
2. Is there any pending litigation or investigation against the entity or any of its principals?
3. Is there disagreement among/between the owners?
4. Are any mergers, acquisitions, or dispositions planned or likely?
5. Has there been a high turnover of key management?
6. Is the entity dependent on one major customer for most of its revenue or on one major supplier for most of its products?
7. Does management have a reputation for taking unusual or unnecessary risks?
8. Is management reluctant to provide necessary documents regarding major transactions or generally uncooperative or unreas
9. Is management unwilling to correct material misstatements in the financial statements?
10. Is there any indication that management representations are not reliable?
11. Does management place undue pressure on meeting financial goals or reducing income taxes?
12. Are key management employees compensated based on the results of the entity’s operations?
13. Is management aware of any instances of fraud or illegal acts?
SECTION IV—COMMUNICATION WITH PREDECESSOR ACCOUNTANTS
1. Are you aware of any situations that might bear on the integrity of management?
2. Have you had any significant disagreements with management over the application of accounting principles, practices, or fin
3. Has management ever attempted to restrict or direct the scope of the audit?
4. Are you aware of any incidents of management intervention in, or circumvention, of the company’s internal control?
5. Is management unwilling to accept primary responsibility for the content of the financial statements?
6. Does management discourage its key employees from cooperating fully with the independent auditor?
7. Have you had any communications with management regarding fraud, illegal acts, or internal control related matters?
Inquire of the predecessor auditor about his or her understanding of reasons for change in auditors and summarize:
Name, address, and phone number of predecessor auditor:
Name and position of person inquired of:
Date of inquiry:
SECTION V—AUDITABILITY AND ABILITY TO PROVIDE SERVICES REQUESTED
1. Does the entity appear to have appropriate completeness procedures to ensure that accounting transactions enter into the a
2. Does the accounting system appear to provide records sufficient to permit application of cost-effective audit procedures?
3. Does our firm have the required technical skills and expertise in the entity’s field?
4. Does our firm or any of its staff have any existing relationship with the entity or conflicts of interest that would impair our inde
5. Does top management lack experience necessary to operate the business?
6. Are there any indications that our firm might have a problem billing or collecting its fees?
SECTION VI—ADDITIONAL COMMENTS
Use this section to elaborate on any of the answers above or to provide additional comments about matters that increase the ov
SECTION VII—CONCLUSION
Prepared by
Acceptance decision:
YES NO
Partner’s signature
Concurring Partner’s signature

Updated in subsequent years as follows:
Year
Position
YES NO N/A
___ ___ ___
___ ___ ___
___ ___ ___
___ ___ ___
___ ___ ___
___ ___ ___
___ ___ ___
___ ___ ___
___ ___ ___
___ ___ ___
YES NO N/A
___ ___ ___
___ ___ ___
___ ___ ___
___ ___ ___
___ ___ ___
___ ___ ___
___ ___ ___

___ ___ ___
___ ___ ___
___ ___ ___
___ ___ ___
____ ____ ____
___ ___ ___
YES NO N/A
___ ___ ___
ancial statement disclosures?
___ ___ ___
___ ___ ___
___ ___ ___
___ ___ ___
___ ___ ___
____ ____ ____

YES NO N/A
ccounting system?
___ ___ ___
___ ___ ___
___ ___ ___
___ ___ ___
___ ___ ___
___ ___ ___
verall engagement risk.
Date
Date
Date
Updated b Date
1
4
5
10
11
12
13
14
15
16
17
18
19
20
21
22
24
25
1
2
3
4
AUDIT PLANNING QUESTIONNAIRE
CLIENT NAME:
Instructions
This form should be used during the planning phase of the engagement, in order to (1) obtain a basic knowledge of the entity’s
operating, and ownership characteristics (Part I), and (2) assess the risk of material misstatement due to fraud (Part II). This kn
the client’s business and industry helps the entire engagement team communicate effectively with management on audit-relate
Gaining an understanding of the client’s business and industry and assessing the risk of material misstatement due to fraud are
ongoing process. The auditor should gather as much information on the client’s business and industry as is needed to assist in
the risk of material misstatement, whether caused by error or fraud, and in developing an overall audit strategy. As the auditor p
each audit, he or she should continually update this form to reflect the knowledge gained in previous years. Before completing t
questionnaire, the auditor should become familiar with the concepts discussed in Chapter 3.
I. KNOWLEDGE OF THE ENTITY’S INDUSTRY, OPERATING, AND OWNERSHIP CHARACTERISTICS
Describe the client’s business and industry.
Pertinent information about key stockholders:
Name of Stockholder
Pertinent information about key management employees:
Name of Employee
Members of the board of directors are as follows:

Name of Director
Members of the audit committee are as follows (if such a committee does not exist, write “None”):
Name of Member
Affiliated organizations or related parties:
Name of Related Party
Describe significant trends within the industry (e.g., growing, stable, or declining).
Describe how the client’s growth and financial results compare with those of the industry and the reasons for significant varianc
If the entity is labor intensive, comment on any unusual labor problems and on the degree of unionization within the labor force.
Comment on the client’s competition, including significant shifts in market share.

Describe the nature of the client’s significant assets, liabilities, revenues, and expenses.
Describe the extent of government regulations that may affect the client.
Describe the methods used to advertise, sell, and distribute the entity’s products or services.
Describe the extent to which the computer is used in significant accounting applications.
Describe the specialized accounting principles, practices, and methods used by the client.
Describe whether new accounting pronouncements are expected to have a material effect on the company’s financial statemen
Describe any new auditing pronouncements that may affect the nature, timing, or extent of the current audit period.
Is a specialist needed to complete the engagement? Describe.
Review prior years’ workpapers and identify areas that pose the greatest audit exposure (e.g., because of dollar value of the ac
weaknesses in internal control) or that may result in expanding audit procedures. Describe.
Describe any additional procedures the client asked us to perform that are beyond the minimum requirements of the audit (e.g.
all receivables).
Summarize the extent of anticipated client assistance in preparing workpapers and pulling supporting documents for examinatio
Will it be necessary to use the report or services of another auditor? Describe.

23. Describe any conditions noted that may cause doubt about the entity’s ability to continue as a going concern.
Summarize the staffing plan:
Staff Name
Summarize tentative dates of importance to the audit engagement (e.g., inventory observation date, fieldwork, date audit report
issued).
II. ASSESSMENT OF THE RISK OF MATERIAL MISSTATEMENT DUE TO FRAUD
Fraudulent Financial Reporting
Management Characteristics and Influence over the Control Environment
1. Is a significant portion of management’s compensation represented by bonuses, stock options, or other incentives, the value
contingent upon the company achieving unduly aggressive targets for operating results, financial position, or cash flow?
2. Does management display an excessive interest in maintaining or increasing the company’s stock price or earnings trend thr
use of unusually aggressive accounting practices?
3. Does management have a tendency to commit to analysts, creditors, and other third parties to achieve what appear to be un
aggressive or clearly unrealistic forecasts?
4. Does management pursue inappropriate means to minimize reported earnings for tax-motivated reasons?
5. Does management fail to effectively communicate and support the company’s values or ethics, or communicate inappropriat
ethics?
6. Is management dominated by a single person, or a small group, without compensating controls such as effective oversight b
board of directors or audit committee?
7. Is there inadequate monitoring of significant controls?
8. Has management failed to correct known reportable conditions on a timely basis?
9. Does management tend to set unduly aggressive financial targets and expectations for operating personnel?
10. Does management display a significant disregard for regulatory authorities?
11. Does management have a history of employing an ineffective accounting, information technology, or internal auditing staff?
12. Do nonfinancial management excessively participate in, or display an excessive preoccupation with, the selection of accoun
principles or the determination of significant estimates?
13. Is there a high turnover of senior management, counsel, or board members?
14. Are there frequent disputes with the auditors (current or predecessor auditors) on accounting, auditing, or reporting matters
15. Are there unreasonable demands on the auditor, including unreasonable time constraints, regarding the completion of the a
issuance of the auditor’s reports?
16. Are there formal or informal restrictions on the auditor, including restricted access to people or information and communicat
the board of directors and the audit committee?
17. Does management display a domineering behavior in dealing with the auditor, especially involving attempts to influence the
the auditor’s work?
18. Is there a known history of securities law violations or claims against the company or its senior management alleging fraud
violations of securities laws?
Industry Conditions
1. Are there new accounting, statutory, or regulatory requirements that could impair the financial stability or profitability of the co
2. Is the company experiencing a high degree of competition or market saturation, accompanied by declining margins?
3. Is the company’s industry declining with increasing business failures and significant declines in customer demand?
4. Are there rapid changes in the company’s industry, such as high vulnerability to rapidly changing technology or rapid product
obsolescence?
Operating Characteristics and Financial Stability
1. Is the company experiencing difficulty generating cash flows from operations while reporting earnings and earnings growth?
2. Is there significant pressure to obtain additional capital necessary to stay competitive considering the financial position of the
including need for funds to finance major research and development or capital expenditures?
3. Are the company’s assets, liabilities, revenues, or expenses based on significant estimates that involve uncertainties, or that
subject to potential significant change in the near term in a manner that may have a financially disruptive effect on the company
4. Are there significant related-party transactions not in the ordinary course of business or with related entities not audited or au
another firm?
5. Are there significant unusual or highly complex transactions, especially those close to year-end, that pose difficult “substance
form” questions?
6. Does the company have significant bank accounts or subsidiary or branch operations in tax-haven jurisdictions for which the
to be no clear business justification?
7. Does the company have an overly complex organizational structure involving numerous or unusual legal entities, managerial
authority, or contractual arrangements without apparent business purpose?
8. Is it difficult to determine the organization or individuals that control(s) the company?
9. Has the company been experiencing unusually rapid growth or profitability, especially compared with that of other companies
same industry?
10. Is the company highly vulnerable to changes in interest rates?
11. Does the company have an unusually high dependence on debt, a marginal ability to meet debt repayment requirements, o
covenants that are difficult to maintain?
12. Does the company have unrealistically aggressive sales or profitability incentive programs?
13. Is the company facing the threat of imminent bankruptcy or foreclosure, or hostile takeover?
14. Could the company potentially have adverse consequences on significant pending transactions, such as a business combin
tract award, if poor financial results are reported?
15. Is the company experiencing poor or deteriorating financial position when management has personally guaranteed significa
the company?
Misappropriation of Assets
Susceptibility of Assets to Misappropriation
1. Does the company have large amounts of cash on hand or process significant cash transactions?
2. Does the company’s inventory consist of small-size, high-value, or high-demand items that are susceptible to theft?
3. Does the company have easily convertible assets, such as bearer bonds, diamonds, or computer chips?
4. Does the company have fixed assets that are susceptible to misappropriation, such as small size, marketability, or lack of ow
identification?
Controls
1. Is there a lack of appropriate management oversight?
2. Is there a lack of job applicant screening procedures relating to employees with access to assets susceptible to misappropria
3. Does the company have inadequate recordkeeping with respect to assets susceptible to misappropriation?
4. Is there a lack of appropriate segregation of duties or independent checks?
5. Is there a lack of appropriate system of authorization and approval of transactions?
6. Does the company have poor physical safeguards over cash, investments, inventory, or fixed assets?
7. Is there a lack of timely and appropriate documentation for transactions?
8. Is there a lack of mandatory vacations for employees performing key control functions?
Other Considerations Relating to Fraud
Describe below any additional fraud risk factors or conditions identified as being present, and whether there are specific control
mitigate the risk.
If the entity has established a program that includes steps to prevent, deter, and detect fraud, inquire of those persons oversee
programs as to whether any fraud risk factors have been identified.
Inquire of management or the owner/manager about (1) their understanding regarding the risk of fraud in the entity and (2) whe
have knowledge of fraud that has been perpetrated on or within the entity. Some examples of matters that might be discussed a
the inquiry are (1) whether there are particular locations, business segments, types of transactions, account balances, or financ
statement categories where fraud risk factors exist or may be more likely to exist, and (2) how management may be addressing
risks.
Document below whether the assessment of the risk of material misstatement due to fraud calls for (1) an overall response; (2)
response to a particular account balance, class of transactions, or assertion; or (3) both. Describe whether the nature, timing, a
of audit procedures have to be modified, and how. Also, describe any specific responses undertaken.
Prepared by
Approved by
Year
Title Ownership Background
Title Years with the Entity

Director
Since
Member
Since
Nature of Relationship
Number of Years on this Engagement
Title
YES NO N/A
____ ____ ____
____ ____ ____
____ ____ ____

____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____

____ ____ ____
YES NO N/A
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
YES NO N/A
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____

____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
YES NO N/A
____ ____ ____

____ ____ ____
____ ____ ____
____ ____ ____
YES NO N/A
____ ____ ____
____ ___ ___
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____
____ ____ ____

Date
Date
Updated b Date
AUDIT TIME BUDGET AND CONTROL FORM
CLIENT NAME:
Instructions
The time budget represents guidelines, not absolutes, for numbers of hours for each section of the audit. Changes in conditions
cause the auditor to revise planned audit procedures and, therefore, require the auditor to revise the time budget.
Initially, this form is to be used to summarize the audit time budget. Subsequently, the auditor should use this form to monitor th
of the audit as of a certain date by summarizing the “Individual Time Accumulation Sheet” in Section III, (FOR05), whenever the
desires a status report on the engagement.
ENGAGEMENT STATUS AS OF (Enter date)
AUDIT SECTION
General planning
Review and assessment of internal control
Cash
Investments
Accounts receivable:
Confirmation procedures
Other procedures
Inventories:
Observation
Other
Notes receivable
Prepaid expenses
Other assets
Property and equipment
Intangible assets
Leases
Accounts payable
Notes payable
Accrued expenses
Income taxes
Long-term liabilities
Commitments and contingencies
Equity
Operations
Subsequent events review
Trial balance and adjusting entries
Report preparation
Management letter
Supervision and review
TOTALS
SUMMARY
Partners
Audit manager
Tax manager
Supervisor
Senior
Staff I
Staff II
Staff III
TOTALS
Prepared by
Approved by
ACTUAL BUDGET
Date
Date
INDIVIDUAL TIME ACCUMULATION SHEET
CLIENT NAME:
Instructions
The time budget represents guidelines, not absolutes, for numbers of hours for each section of the audit. Staff members are res
for maintaining adequate records of their time and for posting it daily to the time sheet below. Staff members also should compa
hours to date to the budget and inform the manager of any deviations or unfavorable projected variances in the schedule.
STAFF NAME
ENGAGEMENT STATUS AS OF (Enter date)
AUDIT SECTION
General planning
Review and assessment of internal control
Cash
Investments
Accounts receivable:
Confirmation procedures
Other procedures
Inventories:
Observation
Other
Notes receivable
Prepaid expenses
Other assets
Property and equipment
Intangible assets
Leases
Accounts payable
Notes payable
Accrued expenses
Income taxes
Long-term liabilities
Commitments and contingencies
Equity
Operations
Subsequent events review
Trial balance and adjusting entries
Report preparation
Management letter
Supervision and review
TOTALS
ACTUAL BUDGET
INHERENT RISK ASSESSMENT FORM—
ACCOUNT BALANCE OR TRANSACTION CLASS
CLIENT NAME:
ACCOUNT BALANCE OR TRANSACTION CLASS:
Instructions
This form should be used to document the assessment of inherent risk for an account balance or transaction class. For each of
factors indicated below (and any other risk factors considered relevant in the circumstances) indicate an assessment of inheren
“Maximum,” “Moderate,” or “Low.” The questions are designed so that a “yes” answer would result in an assessment of inheren
“Maximum.”
1. Are large amounts involved?
2. Did amounts change significantly from the prior year?
3. Is the volume of transactions high?
4. Is the level of transactions subject to seasonal variations?
5. Does the account involve difficult-to-audit transactions or complex accounting issues?
6. Is the number of steps involved in calculating or processing transactions high?
7. Is the account balance or transaction class susceptible to fraud?
8. Is there a need for judgment and estimates in accounting for the transactions involved?
9. Do the personnel responsible for processing the transactions lack experience and proper supervision?
10. Are prior-year misstatements in this account balance or transaction class significant?
Describe below (if applicable) any additional factors considered in this inherent risk
assessment:
_________________________________________________________________________
_________________________________________________________________________
_________________________________________________________________________
After considering the foregoing factors, assess inherent risk for the account balance or
transaction class for each of the financial statement assertions listed below by checking
the appropriate box (i.e., “Maximum,” “Moderate,” or “Low”) for each assertion:
Assessment of inherent risk:
Existence or occurrence
Completeness
Rights and obligations
Valuation or allocation
Presentation and disclosure
Prepared by
Approved by
Maximum Moderate Low
______ ______ ______
______ ______ ______

______ ______ ______
______ ______ ______
______ ______ ______
______ ______ ______
______ ______ ______
______ ______ ______
______ ______ ______
______ ______ ______

Maximum Moderate Low
______ ______ ______
______ ______ ______
______ ______ ______
______ ______ ______
______ ______ ______
Date
Date
PLANNING MATERIALITY CALCULATION FORM
CLIENT NAME:
Instructions
This form should be prepared by the audit personnel in charge of fieldwork (senior or supervisory staff) and reviewed and appro
engagement executive for all audit engagements.
When computing materiality estimates based on total assets and stockholders’ equity, use client balances at or near the financi
statement date (e.g., general ledger, trial balance, or internal financial statements). When computing materiality estimates base
revenue, pretax income, or gross profit, annualize amounts if current-period interim amounts are used; if annual fluctuations are
significant, consider using a three- or four-year average.
The amount of planning materiality established in Step 3 should fall within the lower and upper limits of the computations made
and 2.
Step 1. Materiality Calculation Based on Operating Results
Base
Total revenues
Pretax income
Gross profit
Step 2. Materiality Calculation Based on Financial Position
Base
Total assets
Stockholders’ equity
Step 3. Conclusion on Planning Materiality
Based on the calculations in Steps 1 and 2 above, the range for planning materiality is from $___ to $___, and planning materia
at $___.
Step 4. Tolerable misstatement
Tolerable misstatement is the maximum monetary misstatement the auditor can accept at the account balance or class of trans
level without causing the financial statements to be materially misstated. Tolerable misstatement is used in computing sample s
in making other decisions regarding the extent of testing. Tolerable misstatement can be computed as follows (common rules o
used in practice are to estimate tolerable misstatement as a percentage within 50% to 75% of planning materiality):
Planning Materiality
(Amount from Step 3)
$
Prepared by
Approved by
MATERIALITY TABLE
Base
Total Revenues or Total Assets
Over
$30 thousand
$100 thousand
$300 thousand
$1 million
$3 million
$10 million
$30 million
$100 million
$300 million
Pretax Income 5%–10% of Pretax Income
Gross Profit 1%–2% of Gross Profit
Stockholders’ Equity 1%–5% of Stockholders’ Equity

Amount x Percent Err:509
$ see table $
$ 5% $
$ 2% $
Amount x Percent Err:509

$ see table $
$ 3% $
Percentage Tolerable Misstatement

x (50% to 75=
% $
Date
Date
Planning
Materiality
Is:
But not
Over Amount Factor Excess Over
$30
thousand $0 .0593 $0
$100
thousand $1,780 .0312 $30 thousand
$300
thousand $3,960 .0215 $100 thousand
$1 million $8,260 .0145 $300 thousand
$3 million $18,400 .00995 $1 million
$10
million $38,300 .00674 $3 million
$30 million$85,500 .00461 $10 million
$100
million $178,000 .00312 $30 million
$300 millio$396,000 .00215 $100 million
$1 billion $826,000 .00145 $300 million
a.
b.
c.
d.
•
•
•
•
•
•
•
1
8
1
3
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
4
5
•
3
4
5
•
•
•
5
•
2
3
5
•
•
•
4
5
•
2
3
5
•
3
4
5
•
2
3
5
•
2
3
5
UNDERSTANDING OF INTERNAL CONTROL FORM
CLIENT NAME:
Instructions
This form has been designed to provide members of the audit staff with the information necessary to evaluate the client’s intern
This form is based on the criteria for an effective internal control as set forth in Internal Control—Integrated Framework (the CO
Report) included in SAS-78. Each question should be answered by a check mark in the appropriate column (“YES,” “NO,” or “N
questions have been prepared so that a positive answer will indicate a satisfactory degree of internal control. A negative answe
influence the auditor to amplify the answer or to cover the related question with a supplemental statement in order to make the
understanding more informative and meaningful.
For subsequent years, the internal control form must be reviewed and updated as follows:
The auditor performing each section of the audit should review the previously completed form and determine what changes, if a
client has made in the entity’s internal control.
If there are few changes in a particular audit area, the original answers should be crossed out and the current answers should b
indicated and verified by the auditor.
If the changes for a particular audit area are numerous, the original page should be marked “superseded” and a new page shou
completed.
The auditor updating the audit area should sign and date each section when he or she has completed the updated review of tha
This form is divided into six major sections: (1) control environment, (2) risk assessment, (3) control activities, (4) information a
communication, (5) monitoring, and (6) understanding of account balances and classes of transactions. Before completing this
auditor should be familiar with the concepts discussed in Chapter 5, “Internal Control.”
SECTION I—CONTROL ENVIRONMENT
Section I of the form is designed to help the auditor obtain an understanding of the entity’s control environment, which sets the
organization and influences the control consciousness of its people. According to SAS-78 (AU 319.34), the control environment
encompasses the following factors:
Integrity and ethical values

Commitment to competence
Board of directors or audit committee participation
Management’s philosophy and operating style
The entity’s organizational structure
Assignment of authority and responsibility
Human resource policies and practices
1. Does management adequately convey the message that integrity cannot be compromised?
2. Does a positive control environment exist, whereby there is an attitude of control consciousness throughout the organization,
positive “tone at the top?”
3. Is the competence of the entity’s people commensurate with their responsibilities?
4. Is management’s operating style, the way it assigns authority and responsibility and organizes and develops its people appro
5. Does management understand the requirements of laws and regulations pertinent to its business?
6. Does management adequately consider the potential effects of taking unusual business risks?
7. Are financial statements submitted to and reviewed by management, the board of directors, or the audit committee at regular
8. Does management demonstrate concern about and willingness to correct important weaknesses in the system of internal co
9. Does the entity maintain up-to-date accounting policies and a procedures manual? If yes, obtain copies.
10. Is a chart of accounts maintained and does it describe the nature of each account? If yes, obtain a copy.
11. Does management periodically review insurance coverage?
12. Does management have a history of establishing reliable accounting estimates?
13. Is there a low turnover of management positions, especially financial management?
14. Are key operating positions adequately staffed, therefore avoiding constant crisis?
15. Is there adequate coordination between accounting and IT departments, resulting in timely reports and closings?
16. Is there an organization chart that reflects the areas of responsibility and the line of reporting? If yes, obtain a copy.
17. Are there formal job descriptions that clearly set out duties and responsibilities?
18. Are backgrounds and references of applicants for financial and key management positions investigated?
19. Are personnel policies and employee benefit plans documented and communicated to employees?
20. Is a formal conflict of interest policy or code of conduct in effect? If yes, obtain a copy.
21. Are employees who handle cash, securities, and other valuable assets bonded?
22. Do related employees, if any, have job assignments that minimize opportunities for collusion?
23. Are employees adequately trained to meet their assigned responsibilities?
24. Is rotation of duties enforced by mandatory vacations?
25. Is job performance periodically evaluated and reviewed with employees?
26. Has management established adequate policies and procedures for the development, modification, and use of computer pr
and data files?
27. Does the entity have a board of directors or an audit committee? If yes:
a. Does the board or committee take an active role in overseeing the entity’s policies and practices?
b. Does the board or committee approve the appointment of the entity’s independent auditors?
c. Does the board or committee have sufficient knowledge, experience, and time to serve effectively?
d. Does the board or committee constructively challenge management’s planned decisions and take appropriate action if neces
example, conducting special investigations)?
e. Does the board or committee meet in a timely manner with the chief accounting officer and internal and external auditors to d
reasonableness of the financial reporting process, the system of internal control, and other significant matters?
f. Does the board or committee review the scope of activities of the external and internal auditors at least annually?
g. Does the board or committee regularly receive and review key information, such as financial statements, major marketing init
significant contracts, and negotiations?
h. Does a process exist for informing the board or committee in a timely manner of sensitive information, investigation, and imp
(e.g., significant litigation, investigations by regulatory agencies, embezzlement, misuses of corporate assets)?
i. Is there appropriate oversight in determining the compensation and benefits of executive officers?
j. Is the board or committee sufficiently involved in establishing and evaluating the effectiveness of the “tone at the top” (e.g., ap
the entity’s code of conduct or policy and procedure manual)?
ADDITIONAL COMMENTS—CONTROL ENVIRONMENT
SECTION II—RISK ASSESSMENT
Section II of the form is designed to help the auditor obtain sufficient knowledge and understanding of the entity’s risk assessm
process, which is an entity’s “identification, analysis, and management of risks relevant to the preparation of financial statemen
fairly presented in conformity with generally accepted accounting principles.”
According to SAS-78 (AU 319.38), risks can arise or change due to circumstances such as the following: changes in operating
environment; new personnel; new or revamped information systems; rapid growth; new technology; new business models, prod
activities; corporate restructurings; expanded foreign operations; and new accounting pronouncements.
1. Has management established clear entity-wide objectives and are they consistent with its business plans and budgets?
2. Has management established objectives for key activities and are they consistent with and linked to the entity-wide objective
strategies?
3. Has management identified the resources and critical factors that are important to achieving its objectives (e.g., financing, pe
facilities, technology, etc.)?
4. Does management consider risks arising from external sources (e.g., supply sources, creditors’ demands, competitors’ action
regulation, natural events)?
5. Does management consider risks arising from internal sources (e.g., retention of key personnel or changes in their responsib
compensation and benefit programs to keep the entity competitive, the adequacy of back-up systems in the event of failure of s
that could significantly affect operations)?
6. Does management identify and monitor significant shifts in the entity’s industry (e.g., changes in customer demographics, pre
or spending patterns)?
7. Does management consult with its legal counsel regarding the implications of any new legislation?
8. Are new employees in key positions adequately supervised to ensure that they understand and perform in accordance with t
policies and procedures?
9. Are procedures in place to assess the effects of new or redesigned information systems and to monitor new technologies?
10. Are procedures in place to handle rapidly increasing volumes of information?
11. When considering development of new product lines, does management give appropriate consideration to major factors suc
customer demand, production capabilities, and profitability implications?
12. In connection with corporate restructurings, are staff reassignments and reductions appropriately analyzed for their potentia
operations or on the morale of the remaining employees?
13. Does management keep abreast of the political, regulatory, business, and social culture of areas in which foreign operation
are personnel made aware of accepted customs and rules?
14. Is management aware of the existence of new accounting or reporting pronouncements and how they may affect the entity’
reporting practices?
ADDITIONAL COMMENTS—RISK ASSESSMENT
SECTION III—CONTROL ACTIVITIES
Section III of the form is designed to help the auditor obtain an understanding of the client’s control activities. Control activities a
policies and procedures that help ensure that management’s directives are effective in processing and preparing financial state
successfully address risks and achieve its objectives, management must institute various control activities, such as segregation
physical controls, and a system of approvals.
1. Does management have clear objectives in terms of budget, profit, and other financial and operating goals? If yes, are such
a. Clearly written?
b. Actively communicated throughout the entity?
c. Actively monitored?
2. Do the planning and reporting systems in place:
a. Adequately identify variances from planned performance?
b. Adequately communicate variances to the appropriate level of management?
3. Does the appropriate level of management:
a. Adequately investigate variances?
b. Take appropriate and timely corrective action?
4. Has management established procedures to prevent unauthorized access to, or destruction of, documents, records, and ass
5. Has management established policies for controlling access to programs and data files?
6. Does management adequately monitor such policies?
7. Are amounts recorded by the accounting system periodically compared with physical assets?
8. Are control and subsidiary accounts reconciled regularly and discrepancies reported to appropriate personnel?
9. Are signatures required to evidence the performance of critical control functions, such as reconciling accounts?
10. Are general journal entries, other than standard entries, required to be approved by a responsible official not involved with t
origination?
11. Are accounting estimates and judgments made only by knowledgeable and responsible personnel?
12. Does the accounting system provide in a timely manner the necessary information for the preparation of financial statement
related disclosures in accordance with generally accepted accounting principles or another comprehensive basis of accounting
13. Are financial statements and related disclosures prepared and reviewed by competent personnel who are knowledgeable o
factors affecting the company’s financial reporting requirements?
ADDITIONAL COMMENTS—CONTROL ACTIVITIES
SECTION IV—INFORMATION AND COMMUNICATION
Section IV of the form is designed to help the auditor obtain an understanding of the client’s information and communication sys
Information is identified, captured, processed, and reported by information systems. Relevant information includes industry, eco
and regulatory information obtained from external sources, as well as internally generated information.
Communication is inherent in information processing. Communication involves providing a clear understanding of individual role
responsibilities in an effective manner. This may be accomplished through policy manuals, accounting manuals, or other means
be made orally.
Information
1. Does the organization have mechanisms in place to obtain relevant external information (e.g., on market conditions, competi
programs, legislative or regulatory developments, and economic changes) and internally generated information critical to the ac
of the organization’s objectives?
2. Is the information provided to the right people in sufficient detail and on time to enable them to carry out their responsibilities
and effectively?
3. Is the development or revision of information systems over financial reporting based on a strategic plan and interrelated with
overall information systems and is it responsive to achieving the entity-wide and activity-level objectives?
4. Does management commit the appropriate human and financial resources to develop the necessary financial reporting inform
systems?
Communication
5. Does management communicate employees’ duties and control responsibilities in an effective manner?
6. Are communication channels established for people to report suspected improprieties?
7. Does communication flow across the organization adequately (e.g., from shipping to accounting) to enable people to dischar
responsibilities effectively?
8. Does management take timely and appropriate follow-up action on communications received from customers, vendors, regu
other external parties?
9. Do other parties outside the organization review and follow up on the organization’s actions (e.g., an active review of bank lo
agreements)?
ADDITIONAL COMMENTS—INFORMATION AND COMMUNICATION

SECTION V—MONITORING
Section V of the form is designed to help the auditor obtain an understanding of the client’s monitoring system. Monitoring is a p
that assesses the quality of internal control performance over time. It involves (1) timely evaluation by appropriate personnel of
and operation of controls, (2) identifying areas of improvement and corrective actions, and (3) follow-up procedures to determin
necessary actions are implemented. Monitoring can be accomplished in manners such as the following: ongoing internal activit
internal audit function, and external monitoring activities.
1. Is operating information used to manage operations integrated or reconciled with data generated by the financial reporting sy
2. Are customer complaints about billings investigated and any internal control deficiencies corrected?
3. Are communications from vendors and monthly statements of accounts payable used as a control monitoring technique?
4. Are internal control recommendations made by external auditors (and internal auditors, if applicable) implemented?
5. Does management receive feedback from training seminars, planning sessions, and other meetings on whether controls ope
effectively?
6. Does the organization take a fresh look at the internal control system from time to time and evaluate its effectiveness? If yes:
a Does the evaluation process include checklists, questionnaires, or other tools?
b. Are the evaluations documented?
7. Does the entity have an adequate internal audit function? If yes, do the internal auditors:
a. Possess adequate training and experience?
b. Adhere to applicable professional standards?
c. Have an adequate documentation of the organization’s internal control?
d. Perform tests of controls and substantive tests?
e. Have adequate documentation of their work?

f. Submit reports on their findings to the board of directors or audit committee in a timely manner?
g. Follow up on corrective actions taken by management?
h. Have direct access to the board of directors or audit committee?
i. Have direct access to records and the scope of their activities is not limited?
ADDITIONAL COMMENTS—MONITORING
SECTION VI—UNDERSTANDING OF ACCOUNT BALANCES AND CLASSES OF TRANSACTIONS
Section VI of the form is designed to help the auditor obtain an understanding of the account balances and classes of transactio
are significant to the financial statements. In determining which account balances or classes of transactions are significant to th
statements, the auditor should consider factors such as the following:
The size and volume of individual items comprising the balance or class and the relative materiality of the balance or class to th
Complexity and contentiousness of accounting issues affecting the balance or class.
Frequency or significance of difficult-to-audit transactions affecting the balance or class.
Nature, cause, and amount of known and likely misstatements detected in the balance or class in the prior audit.
Susceptibility of related assets to misappropriation.
Competence and experience of personnel assigned to processing data that affect the balance or class.
Extent of judgment involved in determining the total balance or class.
Complexity of calculations affecting the balance or class.
The auditor may find it useful to complete the “Inherent Risk Assessment Form—Account Balance or Transaction Class” at Sec
Item 6 (FOR06) when determining which accounts or classes of transactions are deemed significant to the audit.
For each audit area deemed significant, the auditor should obtain sufficient knowledge of the accounting system to understand:
· The procedures (both automated and manual) by which transactions are initiated, recorded, processed, and reported from
occurrence to their inclusion in the financial statements.
· The accounting records (both electronic and manual), supporting information, and specific accounts in the financial state
involved in initiating, recording, processing, and reporting transactions (e.g., journals, ledgers, invoices, checks).
· How the information system captures other events and conditions that are significant to the financial statements.
· The financial reporting process followed by the entity to prepare the financial statements, including (1) accounting estima
disclosures, (2) the procedures used to enter transaction totals into the general ledger, (3) the procedures used to initiate, recor
process journal entries in the general ledger, and (4) other procedures used to record recurring and nonrecurring adjustments t
financial statements that are not reflected in formal journal entries (e.g., consolidating adjustments, report combinations, and
reclassifications).
The aforementioned understanding of the accounting system is the minimum requirement that the auditor should comply with fo
audit area deemed significant. After obtaining such an understanding, the auditor may wish to obtain a further understanding of
activities. A further understanding of control activities would generally not be considered necessary for most small businesses.
Nevertheless, the auditor may find it necessary to obtain a further understanding of control activities under the following circum
The auditor needs an understanding of control activities to adequately plan the audit.
The auditor plans to test controls.
The auditor needs such an understanding for purposes of management letter recommendations or other similar purposes.
In summary, for each significant audit area, the auditor should always obtain an understanding of the accounting system and gi
adequate consideration to whether it is necessary to obtain a further understanding of control activities.
After considering these factors, check in the appropriate column below (1) which audit areas are deemed significant, and obtain
understanding of the accounting system for these areas, and (2) whether a further understanding of control activities will be obt
I. CASH
II. INVESTMENTS
III. ACCOUNTS RECEIVABLE AND SALES
IV. INVENTORIES AND COST OF SALES
V. PROPERTY, PLANT, AND EQUIPMENT

VI. PREPAID EXPENSES, DEFERRED CHARGES, INTANGIBLES, AND OTHER ASSETS
VII. ACCOUNTS PAYABLE AND PURCHASES
VIII. PAYROLLS AND OTHER LIABILITIES
IX. DEBT OBLIGATIONS
X. EQUITY
XI. INCOME TAXES

XII. COMMITMENTS AND CONTINGENCIES
XIII. COMPUTER CONTROLS
After completing each applicable audit area in this section, the auditor should document his or her assessment of control risk in
provided after each area. For audit areas not checked, control risk is considered to be assessed at the maximum level. The aud
note that control risk cannot be assessed below the maximum level unless tests of controls are performed; therefore, when con
assessing control risk below the maximum (i.e., moderate or low), the auditor should evaluate whether the effort to be expende
of controls would justify a reduction in the effort related to the performance of substantive tests and, therefore, result in audit eff
See Chapter 5 “Internal Control” for a further discussion on assessing control risk.
I. CASH
INTERNAL CONTROL OBJECTIVES
Access to cash, cash receipts, and cash disbursements records is restricted.
Cash receipts are recorded correctly as to account, amount, and period and are deposited promptly intact.
Cash receipts are applied properly to customer balances.
Cash disbursements are made for goods or services authorized and received.
Cash disbursements are recorded correctly as to account, amount, and period.
Cash balance records are reconciled regularly to bank statements and differences are investigated.
POTENTIAL ERRORS AND FRAUD
Cash Receipts
Cash receipts are recorded incorrectly.
Items are sold for cash, the sale is not recorded, and cash is misappropriated.
Checks received are deposited but not recorded; checks are written to employees for the same amount and also are not record
Customer remittances are misappropriated, and collectible accounts are written off or otherwise credited.
Lapping occurs (e.g., cash receipts are misappropriated and shortages are concealed by delaying postings of cash receipts).
Cash Disbursements
Payment is made for goods or services that are not authorized or not received.
Checks are made out to wrong payees.
Invoices are paid twice.

Vendor invoices are altered and photocopied to conceal alteration; payment benefits third parties.
Check signature or endorsement is forged.
Disbursements are misclassified or not recorded.
Disbursements are recorded at the wrong amount or in the wrong period.
Checks are issued for the benefit of employees or third parties, and payees are changed in the cash disbursements journal.
Cash disbursements journal is overstated; overstated amount is recorded and the difference is misappropriated.
Kiting occurs (exploiting the time required for a check to clear the bank [“float” period] to conceal shortage of cash).
UNDERSTANDING OF ACCOUNTING SYSTEM
1. Describe how and by whom transactions are initiated and authorized.
2. Describe the procedures, both automated and manual, by which transactions are
recorded, processed, and reported from their occurrence to their inclusion in the financial statements.
3. Describe the source documents that support the transactions.
4. Describe the computer media that is used in the processing of accounting information.
5. Describe the documents and reports generated by the accounting system.
FURTHER UNDERSTANDING OF CONTROL ACTIVITIES
Cash Receipts
1. Is mail opened by someone independent of cashier, accounts receivable bookkeeper, or other accounting employees who m
or post journal entries?
2. Is the delivery of unopened business mail prohibited to employees having access to the accounting records?
3. Does the employee who opens the mail:
a. Place restrictive endorsements (“For deposit only”) on all checks received?
b. Prepare a list of the money, checks, and other receipts?
c. Forward all remittances to the person responsible for preparing and making the daily bank deposit?
d. Forward the total of all remittances to the person responsible for comparing it to the authenticated deposit ticket and amount
4. Is a lock box used?
5. Is an independent listing of cash receipts prepared before the receipts are submitted to the cashier or accounts receivable
bookkeeper?
6. Does an independent person verify the listing against the deposit slips?
7. Do cash sales occur? If yes:
a. Are cash receipts prenumbered?
b. Is an independent check of prenumbered receipts done daily and reconciled to cash collections?
c. Are cash register tape totals reconciled to amount of cash in drawer?
d. Do cash refunds require approval?
8. Are authenticated deposit slips retained and reconciled to the corresponding amounts in the cash receipts records?
9. Are cash receipts deposited intact daily?
10. Is the bank deposit made by someone other than the cashier or the accounts receivable bookkeeper?
11. Are employees who handle receipts bonded?
12. Is the accounts receivable bookkeeper restricted from:
a. Preparing the bank deposit?

b. Obtaining access to the cash receipts book?
c. Having access to collections from customers?
13. Are banks instructed not to cash checks drawn to the order of the company?
14. Is the cashier restricted from gaining access to the accounts receivable records and bank and customer statements?
15. Does a person independent of the cash receipts and accounts receivable functions compare entries to the cash receipts jou
a. Authenticated bank deposit slips?
b. Deposit per the bank statements?
c. Listing of cash receipts prepared when mail is opened?
16. Are areas where physical handling of cash takes place reasonably safeguarded?
17. Is information adequately captured from remittances for accurate posting of credits to customer accounts or for proper class
regarding its sources (e.g., interest income, sale of property, loan proceeds)?
18. Do postings to the general ledger control and subsidiary accounts include the date on which the remittance was received?
19. Are postings to the general ledger made by a person independent of the cash receipts and accounts receivable functions?
20. Are customer complaints handled by a person independent of the cashier or accounts receivable functions?
Cash Disbursements
1. Are all disbursements made by check except those from petty cash?
2. Are prenumbered checks used and all numbers accounted for?
3. Are voided checks properly defaced and retained?
4. Are dual signatures required for checks over a predetermined amount? If yes:
a. Are the check signers independent of each other?

b. Is approved supporting documentation presented to each check signer?
5. Is signing of checks in advance or in blank prohibited?
6. Are checks payable to “cash” or “bearer” prohibited?
7. Is access to unused checks limited to authorized persons?
8. Is a check-signing machine used? If yes:
a. At all times, are the keys, signature plate, and operation of the signing machine under control of the official whose signature
plate?
b. Are the employees who have custody of the keys and plate, and who operate the check-signing machine, independent of ch
preparation functions and denied access to blank checks?
c. Are the checks issued to the machine operator counted in advance, and reconciled with the totals indicated on the check-sig
machine by someone other than the machine operator?
9. Are invoices, vouchers, and other supporting documents presented with the checks submitted for signature?
10. Are supporting documents for checks properly canceled (e.g., stamped “paid”) to avoid duplicate payment?
11. Do proper safeguards exist to prevent checks that have been mailed from returning to the accounts payable bookkeeper or
employee who drew the checks?
12. Is the check-signing function independent of purchasing, cash bookkeeping, and preparation of checks?
13. Are bank accounts and check signers authorized by the board of directors?
14. Are all checks promptly recorded upon issuance and listed in detail (e.g., in a check register)?
15. Are payroll checks drawn against a separate bank account?
Petty Cash Funds
1. Are petty cash funds maintained on an imprest basis? If yes, are they:
a. Reasonably small in amount?
b. Kept in a safe area?
c. Regularly counted by someone other than the custodian?
2. Are petty cash disbursements:
a. Supported by prenumbered vouchers?
b. Restricted to a predetermined maximum dollar amount?
3. Are vouchers canceled or marked to prevent duplicate reimbursement?
4. Do advances to employees and IOUs require proper approval?
5. Are checks for reimbursement of petty cash funds:
a. Made out to the order of the custodian?
b. Subject to the same review and approval as invoices?
6. Are surprise counts made at reasonable intervals by an employee independent of the custodian?
Cash Reconciliations
1. Are bank statements, related canceled checks, deposit tickets, and related memos received directly from the bank by the em
performing the reconciliations?
2. Are bank accounts reconciled monthly by a person independent of cash receipts, general ledger, accounts receivable, or acc
payable functions?
3. Do bank reconciliation procedures include:
a. Accounting for the sequence of all check numbers?
b. Examining the paid checks for date, name, endorsement, and cancellation and comparing them to the cash disbursements jo
c. Comparing the detail of bank deposits to cash receipts records?
d. Investigating other reconciling items (e.g., checks returned for insufficient funds)?
e. Following up on old outstanding checks?
4. Is independent review performed of monthly bank reconciliations?
ASSESSMENT OF CONTROL RISK

(Maximum, Slightly Below Maximum, Moderate, or Low)
Financial Statement Assertions

Existence or Occurrence (E)
Completeness (C)
Rights and Obligations (R)
Valuation or Allocation (V)
Presentation and Disclosure (D)
Assessment of control risk
II. INVESTMENTS
Investment transactions are authorized and recorded correctly as to account, amount, and period.
Income earned on investments is recorded correctly as to account, amount, and period.
Loss in value of investments is promptly detected and provided for.
Investment instruments are adequately safeguarded.
Pledging of investments is authorized.
Investments are properly valued and classified as long‑term or short‑term.
Investments are made that are not authorized.
Investments are purchased but not recorded; investments are recorded but not purchased.
Investments are sold but not recorded; investments are recorded as sold but not sold.
Investments are valued incorrectly.
Unwarranted investment losses are incurred or potential investment gains are not realized.
Unauthorized pledging of investments takes place for the benefit of employees or third parties.
Investment income or gains are misappropriated or diverted.

2. Describe the procedures, both automated and manual, by which transactions are recorded, processed, and reported from
1. Are securities kept in a safe vault? If yes:
a. Is a record kept of all visits to the vault?
b. Is the presence or signature of two or more designated persons required to open the vault?
c. Is a detail record (e.g., certificate number, description) kept of each security?
d. Are the securities periodically inspected and compared with detailed investment records by employees independent of the cu
and with the general ledger?
2. Are all securities held in the name of the entity?
3. Is custody of investment securities held by the entity assigned to bonded employees?
4. Is the custodian of securities independent of the accounting function?
5. Are purchases, exchanges, sales, and pledges of investments initiated and approved by designated officers?
6. Are investments held in custodial accounts with a bank, trustee, or broker? If yes:
a. Are account statements from these parties regularly reconciled with the general ledger control account?
b. Is there a periodic review of the reputation and financial position of the parties that are ensuring completion of investment tra
7. Is documented management authorization of transactions compared with evidence of execution of transactions (e.g., brokers
promptly, and are differences investigated?
8. Are procedures adequate to ensure that investment income is recorded properly and collected in a timely manner?
9. Are the carrying values of investments reviewed periodically to determine if adjustments are needed for permanent impairme
value?
10. Are investments that have been written off or fully reserved against followed up on regarding their possible realization?
11. Is a periodic review of the investment portfolio made by designated officers?
12. Are procedures adequate to ensure that derivatives contracts are executed and processed according to management’s
authorizations?


Completeness (C)
III. ACCOUNTS RECEIVABLE AND SALES
Products shipped or services rendered are billed and properly and promptly recorded in the general ledger and subsidiary reco
Billings and revenues are recorded correctly as to account, amount, and period.
Recorded billings are for valid transactions.
Customer returns and other allowances are approved and recorded correctly as to account, amount, and period.
Uncollectible accounts are promptly identified and provided for.
Customer orders require approval of credit and terms in accordance with management’s authorization before acceptance.
Goods are shipped or services rendered but not billed; accounts receivable are not recorded.
Billings are recorded, but goods are not shipped or services are not rendered at all or are not rendered until the following period
Customers are billed at incorrect amounts.
Revenues are recorded in the wrong period to achieve desired earning trends, commissions, bonuses, or profit-sharing goals.
Revenues are understated to reduce taxes, royalties, or rentals based on sales volume.
Revenues are recognized while the customer’s obligation to pay is contingent on future events.
Orders from customers with poor credit are accepted and normal or favorable credit terms are granted.
Orders are accepted at terms other than those established by management.
Unwarranted credits or discounts are granted under a kickback arrangement.
Accounts receivable are aged incorrectly, and potentially uncollectible amounts are not recognized.
Accounts receivable are improperly written off to conceal misappropriation of cash receipts.
Credits issued for returns or allowances are not earned or are not in accordance with company policy.
Revenues are recognized while there is substantial continuing involvement by the company.
7. Describe the procedures, both automated and manual, by which transactions are recorded, processed, and reported from

Sales and Shipping
1. Are customer sales orders approved by someone independent of marketing and order entry (e.g., credit manager) before acc
and before any orders are shipped?
2. Are there adequate procedures for assigning credit limits to new customers? If yes:
a. Is the credit of prospective customers investigated before it is extended to them?
b. Are credit limits approved by designated personnel independent of marketing, billing, collection, and accounting functions?
c. Are credit limits regularly reviewed and compared to balances outstanding?
3. Is there timely communication of credit limits, and changes thereto, to personnel responsible for approving sales orders?
4. Are standard price lists used for basic sales prices and credit terms? If yes:
a. Are they reviewed periodically?
b. Are deviations from the price lists approved by designated employees?
5. Are shipping documents prepared for all goods shipped? If yes:
a. Are the documents prenumbered?
b. Is the numerical sequence of the shipping documents checked and controlled?
c. Does the shipping department double check the quantities shown on the shipping documents?
d. Do the documents clearly indicate pertinent information such as description of quantities and goods shipped, date of shipmen
shipment destination, and means of shipment?
6. Are shipping documents reviewed and compared with billings promptly to ensure that all goods shipped are billed?
7. Are unfilled sales orders reviewed periodically and followed up on?
Customer Returns and Allowances
1. Are returns, allowances, discounts, and other credits approved before issuance by a person who does not handle cash and a
receivable functions?
2. Are receiving reports prepared for all sales returns by the department receiving the incoming materials?
3. Are credit memos for returned goods:
a. Supported by adequate documentation from the receiving department?
b. Prenumbered and the numerical sequence accounted for?
c. Recorded in a timely manner?
4. Are customer claims for repairs under guarantees/warranties checked for compliance with terms of sale?
Billings and Valuation

1. Are sales invoices:
a. Prenumbered and issued in numerical sequence?
b. Prepared for all shipments of goods?
c. Compared with shipping documents and customers orders?
d. Checked for clerical accuracy?
e. Verified for prices used?
f. Checked for credit terms?
2. Are adequate records maintained of daily sales (e.g., in a sales journal) and compared to postings to the general ledger?
3. Are accounts receivable postings reconciled to the sales journal?
4. Is the billing function performed by employees who are independent of the selling, credit, inventory custody, and cash functio
5. Are employees who are responsible for maintaining customers’ accounts receivable ledgers independent of the general ledg
function?
6. Are customer accounts aged regularly? If yes:
a. Are they reviewed regularly by designated personnel?
b. Are past due or delinquent accounts or unusual items investigated in a timely manner?
c. Are credit balances investigated?
7. Is the accounts receivable subsidiary ledger reconciled regularly to the general ledger control account?
8. Are statements of accounts mailed monthly to customers? If yes:
a. Are they sent by an employee who is independent of the accounts receivable and cash functions?
b. Are discrepancies and complaints investigated by the same employee?
9. Is the accounts receivable detail reviewed periodically to determine the need for a valuation allowance for doubtful accounts?
10. Are write-offs of uncollectible accounts approved by an employee other than the credit manager or the accounts receivable
bookkeeper?
11. Are accounts receivable that have been written off turned over to collection agencies or lawyers?
12. Does a responsible official, senior to the accounts receivable bookkeeper, approve journal entries affecting accounts receiv


Completeness (C)
IV. INVENTORIES AND COST OF SALES
Inventories are purchased only with proper authorization.
Inventories received are recorded correctly as to account, amount, and period.
Inventories are adequately safeguarded.
Transfer of finished goods to customers and other dispositions (e.g., scrap sales) are recorded correctly as to account, amount
period.
Production costs and costs of sales are properly accumulated and classified in the accounting records.
Inventory balances recorded in the accounting records are evaluated periodically by comparison with actual quantities on hand
physical inventory).
Costs are assigned to inventories in accordance with the stated valuation method.
Obsolete and slow-moving inventories are promptly detected and provided for.
Carrying values of inventories are periodically compared to net realizable value and appropriate adjustments are made.
Entries are not properly reflected in general ledger inventory accounts for purchases, production, or sales transactions.
Inaccuracies in the detailed perpetual inventory records result in unnecessary materials purchased or units produced, inventory
and obsolescence.
Undetected physical loss or deterioration of inventory occurs.
Scrap sales are not monitored or reported.
Nonexistent inventory items are included in periodic physical count.
Transfers from raw materials or work-in-process are recorded improperly or in the wrong period.
Unauthorized adjustment of inventory records is made to conceal misappropriation of assets.
Inventory records are manipulated to improve performance picture.
Items that do not exist are included in inventory (e.g., empty boxes).
Inventory counts are altered for those items the auditor did not test count.
The computer is programmed to produce fraudulent physical quantity tabulations or priced inventory listings.
The inventory counts and compilations are manipulated for locations not visited by the auditor.
Inventory in transit between locations is double counted.
The stage of completion of work in process is overstated.
The “rollforward” of an inventory taken before the financial statement date is manipulated.

2. Describe the procedures, both automated and manual, by which transactions are
recorded, processed, and reported from their occurrence to their inclusion in the financial statements.

Physical Control, Reconciliations, and Valuation
1. Are all types of inventory (e.g., raw materials, work-in-process, finished goods) adequately safeguarded (e.g., guards, alarms
insured?
2. Are employees with access to inventory bonded?
3. Are offsite inventories stored in bonded warehouses?
4. Are employees who are responsible for custody of inventory independent of inventory recording and accounting functions?
5. Are receiving reports for all incoming materials prepared for the accounting department to be matched with purchase orders
invoices?
6. Are production reports for all materials produced prepared for the accounting department?
7. Are issuances and shipments made only on signed requisitions?
8. Are shipping documents prepared for all shipments?
9. Are physical inventories taken:
a. At the end of the fiscal year?
b. Periodically during the year?
10. Are written instructions and procedures followed for inventory counts and is compliance with them checked?
11. Are inventory counts supervised by qualified persons following adequate written instructions and procedures?
12. Are inventory custodians independent of billing, shipping, and recordkeeping?
13. Are documents issued in prenumbered order and controlled for:
a. Receiving?
b. Shipping?
c. Materials requisitions?
d. Production orders?
14. Are priced inventory sheets numerically controlled and verified as to:
a. Quantities?
b. Unit cost?
c. Extensions and footings?
15. Are costs, extensions, and footings of the inventory listings verified by a second person?
16. Is a periodic review made as to potential overstock, slow-moving, and obsolete items by comparing quantities on hand with
usage?
17. Are adequate controls in place for sale or reuse of scrap or salvaged materials?
18. Is the carrying value of inventory periodically compared to net realizable value, and are adjustments recorded if necessary?
19. Are records maintained for inventory on consignment or in outside warehouses and periodically reconciled to reports receiv
these parties?
20. Are all inventory adjustments documented, and do they require management approval?
Perpetual Records
1. Are perpetual inventory records maintained for:

a. Raw materials?
b. Work-in-process?
c. Finished goods?
d. Supplies and repair parts?
2. Do the perpetual records show:
a. Quantities?
b. Unit costs?
c. Aggregate dollar values?
3. Are the perpetual records kept by employees who have no access to the inventory?
4. Are significant differences between physical counts and perpetual records investigated promptly?
5. Are perpetual records reconciled periodically to the controlling accounts in the general ledger?
6. Are the perpetual records adjusted to the physical inventory counts at least once a year, and are such adjustments approved
responsible employee?
7. Are perpetual inventory records checked regularly by cycle counts? If yes:
a. Are all classes of inventory subjected to cycle counts?
b. Are significant differences between cycle counts and perpetual records investigated and reconciled?
c. Are inventory adjustments documented and do they require management approval?
Cost Accounting Processes
1. Are raw materials issued recorded from production orders or stores requisitions?
2. Are material costs charged to job orders or material usage accounts?
3. Are production labor costs charged to job orders or departmental expense accounts based on payroll records, job tickets, or
reports?
4. Is overhead charged to job orders, departments, or work-in-process based on measure of activity (e.g., direct labor hours or
5. Is work-in-process increased for raw materials placed in production?
6. Is work-in-process relieved and finished goods charged based on completed production orders, inspection reports, or finishe
receiving tickets?
7. Are finished goods relieved based on filled sales orders or storekeepers’ issue slips?
8. Is the application of materials, labor, and overhead to work-in-process and finished goods inventories reviewed regularly for
reasonableness and consistency?
9. Are standard cost variances regularly analyzed and allocated to inventory?


Completeness (C)
V. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are purchased only with proper authorization.
Property, plant, and equipment purchases are recorded correctly as to account, amount, and period.
Disposals, retirements, and trade-ins are identified promptly and recorded correctly as to account, amount, and period.
Property, plant, and equipment are adequately safeguarded and insured.
Depreciation is calculated correctly using proper lives and methods and is recorded in a timely manner.
Purchases of property are recorded in the wrong account or not recorded.
Unnecessary property is acquired, resulting in unused or idle capacity.
Employees are able to conceal unauthorized purchases for their own benefit.
Property remains in the accounting records after disposal.
Sales of property are not recorded, and proceeds are misappropriated.
Wrong lives are assigned to property, resulting in miscalculation of depreciation.
Impaired assets are not written down.
Property accounts include inventory manufacturing costs or research and development costs.
Describe how and by whom transactions are initiated and authorized.
Describe the procedures, both automated and manual, by which transactions are recorded, processed, and reported from their
Describe the source documents that support the transactions.
Describe the computer media that is used in the processing of accounting information.
Describe the documents and reports generated by the accounting system.
1. Are detailed records maintained and do they include:
a. Description of asset?
b. Cost?
c. Acquisition date?
d. Depreciation method?
e. Related depreciation?
f. Useful life?
2. Are the detailed records reconciled to the general ledger control accounts at least once a year?
3. Are depreciable lives reviewed periodically by management and compared to actual experience for adequacy?
4. Is all property adequately insured and is insurance coverage reviewed periodically?
5. Are assets physically inspected periodically and compared to detailed records?
6. Are acquisitions of property authorized by designated personnel for:
a. All capital expenditures?
b. Major renovations?
c. Major repair jobs?
d. Research and development projects?
7. Does the client have a well-defined policy for distinguishing between capital expenditures and repairs and maintenance?
8. Does the retirement or sale of property require the approval of designated personnel?
9. Are procedures adequate to ensure that property physically retired is properly removed from the accounting records and that
proceeds from sale, if any, are properly accounted for?
10. Are the methods of selecting useful lives and depreciation policy clearly defined and approved by designated personnel?
11. Are physical safeguards (e.g., alarms, guards, restricted access) over property adequate?
12. Are the personnel who are responsible for maintaining custody of the property independent of the personnel in charge of m
the accounting records?
13. Does in-house construction require authorized work orders?
14. Is construction-in-progress regularly reviewed for adherence to budgeted amounts?
15. Are receiving documentation, purchase order or contract, and invoice matched before transactions are recorded?
16. Are adequate procedures in place to identify possible impairments in the carrying amounts of long-lived assets?


Completeness (C)
VI.

Expenditures resulting in prepaid expenses, deferred charges, intangibles, and other assets are incurred only with proper autho
Prepaid expenses, deferred charges, intangibles, and other assets are recorded correctly as to account, amount, and period.
Amortization or loss in value is recorded correctly as to account, amount, and period.
The carrying values of assets are recoverable.
Supplies and promotional items are not inventoried and are exposed to theft.
Expenditures are misclassified, recorded at wrong amounts, or not recorded.
Misclassifications are used to conceal unauthorized expenditures for the benefit of employees.
Amortization period exceeds period of benefit.
Amortization of assets is miscalculated.
Assets remain on the books after disposal or expiration of the benefit period.
Intangible assets are carried in excess of value.
Intangibles known to be worthless are not written off.

1. Are all such transactions executed in accordance with management authorizations?
2. Is property and liability insurance coverage maintained and reviewed periodically for adequacy?
3. Are the unexpired amounts of premiums that were paid in advance carried as assets in prepaid expenses?
4. Is documentation adequate regarding intangible assets, including:
a. Specific identity and legal title, if applicable?
b. Manner of acquisition (e.g., purchased, developed internally)?
c. Basis for the capitalized amount?
d. Expected period of benefit?
e. Amortization method?
5. Are amortization periods and calculations approved and periodically reviewed by a responsible person?
6. Are the carrying values of all such assets periodically reviewed for reasonableness, and are appropriate adjustments or write
made?
7. Are write-downs of carrying values properly documented and approved?

8. Are deferrals of expenses reviewed to assure that they result in recognition in the proper period?


Completeness (C)
VII. ACCOUNTS PAYABLE AND PURCHASES
Goods or services are purchased only with proper authorization.
Goods or services received are recorded correctly as to account, amount, and period.
Recorded acquisitions are for goods and services received.
Adjustments to vendor accounts are made in accordance with management’s authorization.
Only authorized goods and services are accepted and paid for.
Access to purchasing, receiving, and accounts payable records is adequately controlled to prevent or detect duplicate or improp
payments.
Unauthorized purchases are incurred.
Purchases are recorded but goods or services are not received.
Liability is incurred but not recorded.
Purchase amount is recorded incorrectly.
Purchase is charged to wrong account or is recorded in wrong period.
Purchases at other than favorable terms are made to facilitate side deals for the personal benefit of employees.
Purchases are misclassified to conceal lack of authorization.
Improper deferrals of income are recorded in order to shift income to future periods.
Purchase discounts are taken but not recorded and amounts of discounts are misappropriated.
Employees conceal unauthorized purchases for their own benefit.
1. Does the client have a purchasing department? If yes, is it independent of:

a. The accounting department?
b. The receiving department?
c. The shipping department?
2. Are purchases made only after the respective department heads sign purchase requisitions?
3. Are purchases made by means of purchase orders sent to vendors for:
a. All purchases?
b. Only purchases over a predetermined dollar limit?
4. Do purchase orders specify:
a. Description of items?
b. Quantity?
c. Price?
d. Terms?
e. Delivery requirements and dates?
5. Is a list of unfilled purchase orders maintained and reviewed periodically?
6. Are purchase order forms prenumbered and is the sequence accounted for periodically?
7. Does the client maintain an approved vendors list?
8. Are items purchased only after competitive bids are obtained? If yes, are competitive bids obtained for:
a. All purchases?
b. Only purchases over a predetermined dollar limit?
9. Is a log maintained of all receipts?
10. Does the receiving department prepare receiving reports for all items received? If yes, are receiving reports:
a. Prepared for all items?
b. Prepared only for items that have purchase orders?
c. Prenumbered?
11. At the time the items are received, does someone independent of the purchasing department check the merchandise befor
acceptance as to:
a. Description?
b. Quantity?
c. Condition?
12. Are copies of receiving reports:
a. Furnished to the accounting department?
b. Furnished to the purchasing department?
c. Filed in the receiving department?
13. Are receipts under blanket purchase orders monitored, and are quantities exceeding authorized total returned to vendor?
14. Are procedures adequate for the proper accounting for partial deliveries of purchase orders?
15. Are purchasing and receiving functions separate from invoice processing, accounts payable, and general ledger functions?
16. Are vendors’ invoices, receiving reports, and purchase orders matched before the related liability is recorded?
17. Are invoices checked as to:
a. Prices?
b. Extensions and footings?
c. Freight charges or allowances?
d. Credit terms?
18. Are controls adequate to ensure that all available discounts are taken?
19. Are purchases recorded in a purchase register or voucher register before being processed through cash disbursements?
20. Does a responsible employee assign the appropriate general ledger account distribution to which the invoices are to be pos
21. Are procedures adequate to ensure that invoices have been processed before payment and to prevent duplicate payment (
block stamp)?
22. Does a responsible official approve invoices for payment?
23. Are procedures adequate to ensure that merchandise purchased for direct delivery to customers is promptly billed to the cu
and recorded as both a receivable and a payable?
24. Are records of goods returned to vendors matched to vendor credit memos?
25. Are unmatched receiving reports, purchase orders, and vendors’ invoices periodically reviewed and investigated for proper
26. Is the accounts payable ledger or voucher register reconciled monthly to the general ledger control accounts?
27. Are statements from vendors regularly reviewed and reconciled against recorded liabilities?
28. Do adjustments to accounts payable (e.g., writing off of debit balances) require the approval of a designated official?
29. Are budgets used? If yes:
a. Are budgets approved by responsible officials?
b. Are actual expenditures compared with budgeted amounts and variances analyzed and explained?
30. Are entries for deferrals of income reviewed to assure that they result in proper recognition of income?


Completeness (C)
VIII. PAYROLLS AND OTHER LIABILITIES

Payrolls
Salaries, wages, and benefits are incurred only for work authorized and performed.
Salaries, wages, and benefits are calculated at the proper rate.
Salaries, wages, benefits, and related liabilities are recorded correctly as to account, amount, and period.
Employee payroll withholdings and special deductions are based on signed authorizations by employees.
Other liabilities
Accruals for liabilities are approved by a responsible official, and detail subsidiary records are maintained and reconciled period
the general ledger control accounts.
Payrolls
Unauthorized work or work not performed is accrued.
Accrual of employee benefits (e.g., vacation pay, sick leave) is recorded but not earned.
There are fictitious employees on the payroll.
Employees’ earnings are over-accrued or under-accrued because of the use of improper rates or computation errors.
Payroll costs, expenses, or related liabilities are misclassified.
Payroll is recorded in period paid rather than in period earned.
Time cards or reports are padded.
Terminated employees remaining on payroll.
Other liabilities
Unauthorized expenses are incurred.
Expenses and accruals are misclassified, recorded at the wrong amounts, or not recorded in the period incurred.
Payrolls
1. Are personnel records maintained independent of payroll and timekeeping functions?
2. Is the payroll accounting function independent of the general ledger function?
3. Are changes to payroll not made unless the personnel department sends approved notification directly to the payroll departm
4. Are references and backgrounds checked for new hires?
5. Are all wage rates:
a. Authorized in writing by a designated official?

b. Fixed by union contract?
6. Are signed authorizations on file for employees whose wages are subject to special deductions?
7. Are bonuses, commissions, and overtime:
a. Approved in advance?
b. Reviewed for compliance with company policy?
8. Are sick leave, vacations, and holidays reviewed for compliance with company policy?
9. Are appropriate forms (e.g., W-4) completed and signed by employees to show authorization for payroll deductions and withh
exemptions?
10. Is the payroll periodically checked against the personnel records for terminated employees, fictitious employees, etc.?
11. Does the client use a time clock for:
a. General office workers?
b. Factory workers?
12. If the client uses a time clock, are time cards:
a. Punched by employees in the presence of a designated supervisor?
b. Signed by a supervisor at the end of the payroll period?
13. Are time cards and piece-work production reports reviewed and compared with:
a. The payroll distribution report?
b. Production schedules?
14. Are payroll registers reviewed and approved, before disbursements are made, for:
a. Names of employees?
b. Hours worked?
c. Wage rates?
d. Deductions?
e. Agreement with payroll checks?
f. Unusual items?
15. Are all employees paid by check out of a separate bank payroll account?
16. Are payroll checks prenumbered and issued in numerical sequence?
17. Is access restricted to:
a. Unissued payroll checks?
b. Signature plate?
18. Are checks drawn and signed by designated officials who do not:
a. Prepare the payroll?
b. Have access to the accounting records?
c. Have custody of cash funds?
19. Are payroll checks distributed by someone other than the:
a. Department head?
b. Person who prepares the payroll?
20. Is the distribution of the payroll rotated periodically to different employees without prior notice?
21. Is the payroll bank account reconciled by a designated employee who:
a. Is not involved in preparing the payroll?
b. Does not sign the checks?
c. Does not handle the check distributions?
22. Do payroll bank account reconciliation procedures include:
a. Comparing the paid checks to the payroll?
b. Scrutinizing canceled check endorsements?
23. Are the payroll registers reconciled to the general ledger control accounts?
24. Is a liability account set up for all wages that have remained unclaimed for a certain period of time? If yes:
a. Have these wages been redeposited in a special bank account?
b. Is identification required to be presented at the time of their subsequent distribution?

25. Are distributions of hours (direct and indirect) to activity or departments reviewed and approved by supervisory personnel?
26. Are actual payroll amounts reviewed and compared to budgeted amounts, and are variances analyzed regularly?
27. Do adequate procedures exist for timely and accurate preparation and filing of payroll tax returns and related taxes?
28. Are employee benefit plan contributions reconciled to appropriate employee census data?
29. Are adequate detailed records maintained of the entity’s liability for vacation pay and sick pay? If yes:
a. Are they reconciled to the general ledger control accounts periodically?
Other Liabilities
1. Are accruals for liabilities approved by a responsible official?
2. Are detail subsidiary records maintained and reconciled periodically to the general ledger control accounts?


Completeness (C)
IX. DEBT OBLIGATIONS
Debt and lease obligations and related expenses are authorized and recorded correctly as to account, amount, and period.
Requirements and restrictions imposed by debt covenants and lease agreements are complied with and monitored.
Debt retirements and modifications have been properly accounted for.
Debt instruments and lease agreements are adequately safeguarded.
The entity becomes obligated for debts that are not properly authorized or that are taken on at unfavorable terms.
Long-term or short-term debt is misclassified.
Pledged assets or collateral are not identified and disclosed; unauthorized pledging of assets occurs.
Violations of debt covenants or lease agreements result in default.
Capital leases are recorded as operating leases or vice versa.
Interest expense is recorded in the wrong period or at the wrong amount, is not recorded, or is misclassified.
Debt proceeds are used for other than business purposes.
Loan proceeds are recorded as sales.
Debt is recorded as equity.
1. Do borrowings and leases require authorization by designated personnel?
2. Are signatures of two or more designated officials required on all notes payable, lease agreements, and renewals?
3. Is a notes payable register maintained by a person independent of check or note signing?
4. Do paid notes get canceled and returned?
5. Are interest charges regularly posted and reviewed?
6. Is compliance with loan covenants and lease agreements periodically reviewed and monitored?
7. Are detailed records periodically reconciled with the general ledger control accounts?
8. Are debt instruments and related legal documents (e.g., notes, bonds) adequately safeguarded?
9. Are procedures adequate to ensure that derivatives contracts are executed and processed according to management’s auth


Completeness (C)
X. EQUITY
Equity transactions are authorized and recorded correctly as to account, amount, and period.
Recorded capital stock transactions are properly valued.
Stock records are adequately safeguarded.
Dividends are authorized, recorded, and properly valued.
Sale of shares is not authorized and violates loan covenants or other legal requirements.
Sale of shares is recorded incorrectly or not recorded at all.
Stock options exercised are not authorized or not in accordance with the terms of options granted.
Dividends paid violate restrictive documents or other legal requirements.
Dividends are paid to wrong parties or at incorrect amounts.
Proceeds from sale of shares are misappropriated.
Unauthorized pledging of stock occurs.
Receivables from sale of stock are not recognized.
1. Are capital transactions authorized and approved in accordance with the entity’s governing documents?
2. Is a register of current shareholders and shares outstanding maintained and periodically reviewed for completeness?
3. Does adequate segregation of duties exist with respect to the following functions:
a. Custody of unissued stock certificates?
b. Maintenance of detail stockholder records?
c. General ledger function?
d. Cash receipts and disbursements functions?
e. Issuance, cancellation, and transfer of stock certificates?

4. Does a designated officer have custody of all unissued stock certificates and stock certificate stubs?
5. Are surrendered certificates effectively canceled and examined for proper endorsement?
6. Are stock certificates prenumbered and issued in sequence?
7. Are adequate records maintained for each class of stock, and do these records include the following shares information:
a. Authorized?
b. Issued?
c. Outstanding?
d. Subject to options?
e. Subject to warrants?
f. Conversion privileges?
8. Are treasury stock certificates regularly counted and reconciled to the control account?
9. Is a ledger maintained and regularly reviewed for stock options granted, exercised, expired, and exercisable?
10. Are stock options exercised reconciled to changes in shares outstanding and capital accounts?
11. Are proposed dividends reviewed for compliance with statutory requirements and retained earnings restrictions?
12. Are dividends disbursed reconciled in total to the outstanding shares as of the record date?
13. Are returned or unclaimed dividend checks promptly redeposited and liability recorded?
14. Is an independent registrar or stock transfer agent used by the client? If yes:
a. Are shares of stock reported by registrar and transfer agent reconciled regularly to shares outstanding?
15. Are minute books maintained and safeguarded?

Completeness (C)
XI. INCOME TAXES
Provisions for income taxes and related liabilities and deferrals are recorded correctly as to account, amount, and period.
All tax returns are filed and related payments are made in a timely manner.
Status of pending examinations by taxing authorities is monitored.
Required estimated tax payments are not made.
Provision for income taxes or related tax liability is not reflected in the accounting records or is reflected at incorrect amounts.
Incorrect tax returns are filed; subsequent audits by taxing authorities result in material unrecorded liabilities.
Tax expense is intentionally misstated to enhance results of operations or financial position.
A valuation allowance is not established.

1. Are current controls and procedures adequate to ensure that all tax returns and related estimated payments are prepared an
promptly?
2. Are procedures adequate to identify and report permanent and temporary differences?
3. Are changes between beginning and ending deferred income tax balances periodically reconciled to the general ledger contr
accounts?
4. Are tax returns and financial calculations reviewed by a person independent of the preparer?
5. Is there a formal policy for identifying and evaluating tax exposure items?
6. Are adequate records and supporting documentation maintained in conformity with the compliance requirements of the taxin
authorities?
7. Is access to records restricted?


Completeness (C)
XII. COMMITMENTS AND CONTINGENCIES
Commitments and contingencies are identified and monitored.
Commitments and contingencies are recorded or disclosed, if deemed appropriate.
Legal and contractual matters are routed to in-house or outside legal counsel.
Insurance coverage is adequate and is reviewed regularly.
Provisions for losses that are probable and reasonably estimable are not recorded.
Losses are incurred because of inadequate insurance coverage.
Unfavorable claims, judgments, commitments, and contingencies are not disclosed.
1. Are files of contracts, legal correspondence, etc., maintained and periodically reviewed?
2. Are legal and contractual matters always referred to in-house or outside legal counsel?
3. Is compliance with guarantee or warranty policies reviewed by a designated official before the costs are incurred?
4. Are adequate detailed records of costs incurred under product warranties maintained, and are related reserves reviewed per
for adequacy?
5. Is adequacy of insurance coverage reviewed regularly?
6. Is status of litigation reviewed regularly and monitored by designated officer and consultation with legal counsel?
7. Are reported claims reviewed by designated official for appropriate consideration in determining accruals for losses?
8. Are provisions for losses that are probable and subject to reasonable estimation recorded promptly?

Completeness (C)
XIII. COMPUTER CONTROLS
Capture, process, and maintain information completely and accurately and provide it to the appropriate personnel to enable the
out their responsibilities and to allow the reliable preparation of financial statements.
Computer operations use correct programs, files, and procedures.
Program modifications are implemented correctly.
Access is restricted to authorized personnel.
Unauthorized access to information and programs.
Application programs that do not meet management’s objectives.
Processing of unauthorized transactions and omitting of authorized transactions.
1. Is the IT department independent of user departments?
2. Is there clear segregation of duties of computer programmers and operators?
3. Are IT personnel prohibited from initiating transactions and changes to master files?
4. Are computer operators required to take annual vacations and are their duties rotated periodically?
5. Is access to the computer room restricted to authorized personnel?
6. Are programmers prohibited from accessing production programs, job control language, and live data files?
7. Are computer operators prohibited from accessing source code and programming documentation?
8. Is testing of new or revised programs on live data files strictly prohibited?
9. Are utility programs adequately controlled and their use logged for subsequent management review?
10. Are unique and confidential passwords required to use terminals?
11. Are passwords changed at regular intervals and canceled for terminated employees?
12. Do individuals have access only to those programs or files that are necessary to perform their duties?
13. Are there established procedures for documenting new systems and programs, as well as modifications of existing ones?
14. Do system and program development procedures require active involvement by the users?
15. Are system and program modifications subject to appropriate testing, and are test results reviewed and approved by user a
management?
16. Are schedules prepared and adhered to for processing of computer applications?
17. Are adequate job set-up and execution procedures in place over:
a. Setting up of batch jobs?
b. Loading on-line application systems?
c. Loading system software?
d. Input and output media to be used?
18. Are there appropriate procedures for identifying, reporting, and approving operator actions over:
a. Initial loading of system and application software?
b. System failures?
c. Restart and recovery?
d. Emergency situations?
e. Any other unusual situations?
19. Are logs used to record operator activities, and are they reviewed by appropriate personnel?
20. Are there appropriate procedures for back-up and storage of programs and data files?
21. Are critical data files, systems, and program libraries backed up regularly and stored off-site?
22. Have contingency plans been developed for alternative processing in the event of loss or interruption of the IT function?


Completeness (C)
This Understanding of Internal Control Form has been prepared, reviewed, and updated as follows:
Prepared by
Approved by
Year
YES NO N/A
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Check Significant Audit Area (and Obtain Understanding of Accounting System)
Check Only if Further Understanding of Control Activities Will be Obtained
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E C R V D
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E C R V D
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E C R V D
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E C R V D
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E C R V D
PREPAID
EXPENSES,
DEFERRED
CHARGES,
INTANGIBLE
S, AND
OTHER
ASSETS
YES NO N/A
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E C R V D
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E C R V D
YES NO N/A
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E C R V D
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E C R V D
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E C R V D
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E C R V D
YES NO N/A
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E C R V D
Date
Date
Updated
by Date
1
4
5
8
9
10
AUDIT SAMPLING WORKSHEET FOR SUBSTANTIVE TESTS
CLIENT NAME:
AUDIT AREA:
Instructions
This worksheet is designed to assist the auditor in planning, performing, and evaluating a nonstatistical sample for substantive
worksheet implements the discussion in Chapter 6, “Extent of Audit Procedures and Sampling,” with respect to (1) planning the
(2) determining the sample size, (3) selecting the sample, (4) performing the tests, and (5) evaluating the sample results. There
before completing this worksheet, the auditor should become familiar with the concepts discussed in Chapter 6.
Describe the audit objective of the test:
Describe the sampling unit:
Describe the nature of substantive tests:
Population characteristics (e.g., many small items, few large amounts, even distribution):
Describe how the completeness of the population was considered:
Determining individually significant items coverage:
a. Population value
b. Number of items in population
c. Planning materiality (from “Planning Materiality Calculation Form,” Chapter 4)
d. Tolerable misstatement, usually 50%-75% of planning materiality in 6c
e. Individually significant item cutoff amount (tolerable misstatement in 6d divided by a factor of 3 to 6)
f. Total amount of individually significant items
g. Number of individually significant items
h. Individually significant items coverage (6f divided by 6a)
i. Sampling base (6a - 6f) (if sample is stratified, provide sampling base for each strata)
Strata 1 $_____________
Strata 2 $_____________
Is “Individually significant items coverage” percentage in 6h above considered adequate coverage? (Generally, if the percentag
covers 2/3 [67%] or more of the population, the coverage is considered adequate.)
If the answer is “Yes,” do not complete the rest of this form. Sampling generally would not be considered necessary in this case
as the auditor observed no evidence of problems from other audit procedures performed and the remaining population in 6i tota
than an amount that would be considered material to the financial statements.
If the answer is “No,” complete the rest of this form.
Calculating the sample size and selection technique:
a. Assurance factor (from Table 1 below)
b. Initial sample size [(6i/6d) x 8d]
c. Will the sample be stratified?

d. Sampling risk expansion factor for lack of stratification (a factor of 1.2 to 1.5 if 8c is “No”; N/A if 8c is “Yes”)
e. Adjusted sample size (8b x 8d if 8c is “No”; same as 8b if 8c is “Yes”)
f. Selection technique (choose Systematic, Random, or Haphazard)
Summary of test results and total misstatement (if sample is not stratified, enter applicable amounts on line “No Stratification”; if
enter applicable amounts on lines “Strata 1” and “Strata 2”):
a. Amount of misstatement in the sample tested:
(1) No Stratification
(2) Strata 1
(3) Strata 2
b. Total dollar amount of sample items selected in 8e above:
(2) Strata 1
(3) Strata 2
c. Projected misstatement (use the first approach if the errors relate closely to the size of the item; use the second approach if t
are unrelated to the size of the items; and check the appropriate method):
Ratio of population dollars to sample dollars [(6i/9b) ´ 9a]
Ratio of population items to sample items {[(6b ‑ 6g)/8e] ´ 9a}
(2) Strata 1
(3) Strata 2
d. Known misstatement (the amount of misstatement found in the individually significant items that were examined 100% for the
6g)
e. Total misstatement (9c + 9d)
Conclude on the acceptability of test results and any modifications to the audit plan:
Prepared by
Approved by
Table 1: Assurance Factors
Assessment of Inherent Risk

and Control Risk
Maximum
Slightly Below
Maximum
Moderate
Low
$
Yes No
Yes No
$
$
Date
Date
Risk That Other Substantive Procedures Will

Fail to Detect a Material Misstatement
Slightly Below
Maximum Maximum Moderate Low
3 2.7 2.3 2
2.7 2.4 2 1.6
2.3 2.1 1.6 1.2

2 1.6 1.2 1
1
4
5
10
11
12
13
AUDIT SAMPLING WORKSHEET FOR TESTS OF CONTROLS
CLIENT NAME:
AUDIT AREA:
Instructions
This worksheet is designed to assist the auditor in planning, performing, and evaluating audit sampling for tests of controls. Thi
worksheet implements the discussion in Chapter 6, “Extent of Audit Procedures and Sampling,” with respect to (1) planning the
(2) determining the sample size, (3) selecting the sample, (4) performing the tests, and (5) evaluating the sample results. There
before completing this worksheet, the auditor should become familiar with the concepts discussed in Chapter 6.
Describe the audit objective(s) of the test:
Describe the internal control activities being tested:
Define the sampling unit:
Describe how the completeness of the population was considered:

Define the period covered by the test:
Define the deviation conditions:
7. Indicate the expected number of deviations. (NOTE: If the expected number of deviations is more than 3, STOP; the sample
be relatively large to be cost-effective for most audit applications. The auditor should challenge whether the controls are functio
effective and should modify the planned audit procedures accordingly.)
8. Indicate the planned assessed level of control risk (Low, Moderate, Slightly Below Maximum, or Maximum).
Determine the sample size and selection technique:
a. Sample size (use Table 1 below)
b. Selection technique (choose Systematic, Random, or Haphazard)
Describe the tests of controls to be performed:
Evaluation of Sample Results and Overall Conclusions
Specify the number and type of deviations noted and the reasons for such deviations:
Summarize the final assessment of control risk (Low, Moderate, Slightly Below Maximum, or Maximum):
Conclude on the acceptability of test results and any modifications to the audit plan:
Prepared by
Approved by
Table 1: Matrix For Determining Sample Size For Tests of Controls
Planned Assessed Level of Control Risk
Low
Moderate
Slightly below maximum
Maximum
* Omit test because tests of controls would most likely be inefficient or ineffective.
0___
1___
2___
3___
Date
Date
Number of Expected or Actual Deviations

0 1 2 3
60 * * *
25 40 60 60
* 25 25 40
* * * *
ANALYTICAL PROCEDURES—RATIO ANALYSIS FORM
The auditor can use this form to document the performance and evaluation of ratio analysis in connection with analytical proced
performed in an audit. The form is only a guide and is not a substitute for professional judgment. The form may be modified by
omitting certain ratio analysis.
CLIENT NAME:
LIQUIDITY RATIOS
1. Current ratio =
Current Assets
Current Liabilities
Comments:
2. Quick or acid test ratio =
Current Assets - Inventory

Current Liabilities
Comments:
PROFITABILITY RATIOS
1. Gross profit ratio =
Net Sales - Cost of Goods Sold

Net Sales
Comments:
2. Operating margin ratio =
Income before Income Taxes and Interest

Net Sales
Comments:
3. Net income ratio (or profit margin ratio) =
Net Income
Net Sales
Comments:
4. Return on total assets ratio =
Net Income + Interest Expense

Total Assets
Comments:
5. Return on equity ratio =
Net Income
Average Stockholders’ Equity
Comments:
LEVERAGE RATIOS
1. Debt to assets ratio =
Total Debt
Total Assets
Comments:
2. Debt to equity ratio =
Long-Term Debt
Stockholder’s Equity
Comments:
3. Times interest earned ratio =
Income before Income Taxes and Interest

Interest Expense
Comments:
ACTIVITY RATIOS
1. Inventory turnover =
Cost of Goods Sold

Average Inventory
Comments:
2. Average age of inventory =
360 Days
Inventory Turnover
Comments:
3. Accounts receivable turnover =
Net Sales
Average Accounts Receivable
Comments:
4. Days sales in accounts receivable =
360 Days
Accounts Receivable Turnover
Comments:
5. Asset turnover =
Net Sales
Total Assets
Comments:
Prepared by
Approved by
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1
INVENTORY OBSERVATION CHECKLIST
CLIENT NAME:
Instructions
This checklist is designed to help the auditor obtain an understanding of the client’s physical count of inventory, including:
The procedures and instructions for the physical count

Verification of the physical counts
Supervision by responsible employees
Reconciliations of the physical counts
Controls over count sheets or inventory tags
Cutoff procedures for shipping and receiving
This checklist is made up of a series of questions designed to help the auditor obtain such an understanding. Additional space
after each question for the auditor to include further explanation or comments. Completion of this checklist necessitates that the
each question be supplemented by additional comments in the space provided, since “Yes,” “No,” or “N/A” generally would not
considered sufficient.
Summarize below the locations of the inventory, the date the client will be counting the inventory, the name of the client person
charge, and the percentage of inventory at each location in relation to the total inventory.
Location
2. Do adequate detailed written inventory instructions and procedures exist? If yes, attach a copy.
3. Do inventory procedures give appropriate consideration to the location and arrangement of inventories? Describe.
4. Do inventory procedures give appropriate consideration to identification and description of inventories? Describe.
5. Is the method of determining inventory quantities specified (e.g., weight, count)? Describe.
6. Is the method used for recording items counted (e.g., count sheets, prenumbered tags) adequate? Describe.
7. Are inventory tags used? If yes:
a. Are they prenumbered?
b. Is accounting for inventory tags adequate and does it include control with respect to tags used, unused, and voided? Describ
8. Are adequate procedures in place to identify inventory counted, ensure that all items have been counted, and prevent double
Describe.
9. Are obsolete, slow-moving, or damaged inventories properly identified and segregated? Describe.
10. Is the inventory reasonably identifiable for proper classification in the accounting records (e.g., description, stage of comple
11. Are inventory counts subject to:
a. Complete recounts by persons independent of the ones involved in the initial counts?
b. Recounts only of merchandise having substantial value?
c. Spot checks by supervisory personnel?

12. Are counts performed by employees whose functions are independent of the physical custody of inventories and recordkee
functions? Describe.
13. Do proper accounting controls and procedures exist for the exclusion from inventory of merchandise on hand, which is not p
the client (e.g., customers’ merchandise, consignments in)? Describe.
14. Do proper accounting controls and procedures exist for the inclusion in inventory of merchandise not on hand, but the prope
client (e.g., merchandise in warehouses, out on repair, consignments out)? Describe.
15. Will identical inventory items in various areas be accumulated to allow a tie in total counts to a summary listing subsequent
observation? Describe.
16. Is the movement of inventory adequately controlled (e.g., shipping and receiving activities suspended) during the physical c
ensure a proper cutoff?
17. Are significant differences between physical counts and detailed inventory records investigated before the accounting and i
records are adjusted to match the physical counts? Describe.
18. Will the client be using the services of a specialist? If yes, describe the arrangements that have been made.
19. Will inventory at remote locations be counted? Describe.
20. Will special counting procedures or volume conversions be necessary (e.g., items weighed on scale)? Describe.
21. How will work-in-process inventory be identified? Describe.
22. How will the stage of completion of work-in-process inventory be identified? Describe.
23. Describe any other matters that should be noted for the inventory count.
Prepared by
Approved by
Year
Date of
Count % of Total Inventory
Client Personnel in Charge
YES NO
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tion)? Describe.
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Date
Date
Updated b Date
N/A
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AUDIT REVIEW AND APPROVAL CHECKLIST
CLIENT NAME:
Instructions
This Audit Review and Approval Checklist is designed to document the performance of the different levels of the review proced
discussed in Chapter 21, “Concluding the Audit.” This checklist should be completed for all audits of financial statements, wheth
prepared in conformity with generally accepted accounting principles or with an other comprehensive basis of accounting.
Detailed Review
Based on my review, I am satisfied that:
1. Our understanding of the client’s internal control is adequately documented.
2. The workpapers are properly titled, indexed, cross-referenced, signed, and dated.
3. The financial statements are clerically accurate and complete and agree with the trial balance and lead sheets.
4. The conclusions of engagement personnel are consistent.
5. The procedures called for in the audit programs were adequately performed, cross-referenced to the audit working papers, a
6. The conclusions reached are clearly documented and adequately supported by the workpapers (e.g., all tick marks are clear
explained; unusual transactions are adequately researched, supported, and explained; no ambiguous comments exist).
7. The procedures performed were sufficient in view of the audit findings and changes in audit procedures were responsive to c
conditions since the procedures were initially planned.
8. The audit was conducted in accordance with generally accepted auditing standards and firm policies and procedures.
9. The financial statement presentation and note disclosures are prepared in accordance with generally accepted accounting pr
(or an other comprehensive basis of accounting).
10. Communication of reportable conditions and audit-related matters has been made to management and the audit committee
equivalent, in accordance with professional standards.
11. The opinion expressed in the auditor’s report is appropriate.
Detailed reviewer’s signature
Partner Review
1. The audit planning was adequate and appropriately documented.
2. An adequate detailed review has been performed for all audit areas.
3. I have conducted an adequate review of workpapers relevant to significant accounting, auditing, or reporting issues, and add
workpapers as deemed necessary.
4. The audit was conducted in accordance with generally accepted auditing standards and appropriate audit recognition was gi
significant financial statement amounts.
5. We obtained timely and appropriate legal letters from the client’s legal counsel.
6. We obtained a timely and appropriate letter of representations from management.
7. Appropriate consideration was given to all unrecorded audit adjustments and audit differences.
8. Communication of reportable conditions and audit-related matters has been made to management and the audit committee,
equivalent, in accordance with professional standards.
10. The opinion expressed in the auditor’s report is appropriate.
Partner’s signature
Independent Review
2. The firm’s report on the financial statements is in accordance with generally accepted auditing standards.
3. I have performed an objective review of significant accounting, auditing, or reporting issues, including:
a. Discussions with the audit partner in charge of the engagement.
b. Review of workpapers relevant to significant accounting, auditing, or reporting considerations to the extent required by firm g
and additional workpapers as deemed necessary.
c. Review of reports or other communications to management required in conjunction with the audit (e.g., communication of rep
conditions).
Independent reviewer’s signature

YES NO N/A
____ ____ ____
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Date
YES NO N/A
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Date
YES NO N/A
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Date
TAX REVIEW CHECKLIST
CLIENT NAME:
Instructions
Some firms require that a tax executive review the tax areas of the audit workpapers and the financial statements. The objectiv
review is to determine whether the income tax provision and related accruals and deferrals computed are reasonable. This Tax
Checklist is designed to help tax personnel document the review of pertinent tax areas of the audit workpapers and the financia
statements.
I have reviewed the tax areas of the audit workpapers and the financial statements, as considered necessary, and am satisfied
1. The current and deferred tax accrual accounts and related provisions were analyzed and the workpaper schedules are reaso
adequate.
2. The workpapers document potential adjustments required for:
a. Tax positions taken by the client that might be challenged by taxing authorities.
b. Possible assessments, penalties, or interest relating to undergoing tax examinations or applicable to years not yet examined
3. Tax-related notes to the financial statements and other tax-related financial statement disclosures (e.g., LIFO) are adequate.
Signature of tax executive
Audit partner’s signature

YES NO N/A
____ ____ ____
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Date
Date
DIFFERENCES OF PROFESSIONAL OPINION FORM
CLIENT NAME:
Instructions
This form should be used when differences of opinion concerning accounting and auditing issues exist among firm personnel in
the audit. The form is designed to enable an audit staff member to document his or her disagreement with the conclusions reac
after appropriate consultation, he or she believes it necessary to disassociate himself or herself from the resolution of the matte
Names and titles of audit staff with differences of professional opinion:
Name
Briefly describe the accounting or auditing issue causing differences of opinion among firm personnel.
Cite professional literature discussed, names of any consultants with whom the issue was discussed, and conclusion of consult
Summarize final resolution and basis for conclusion.
Final Resolution Approved By:
Partner
The following personnel disassociate themselves from the final resolution of the matter discussed above:
Name
Title
Date
Date
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•
•
•
•
•
•
•
•
•
•
•
•
•
•
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FINANCIAL STATEMENT DISCLOSURE CHECKLIST
CLIENT NAME:
Prepared by
Reviewed by
Instructions
This checklist is intended to be used as a guide for determining whether the financial statements of nonpublic for-profit-type ent
include the necessary disclosures as required by generally accepted accounting principles. It should be noted that this checklis
address the specialized disclosure requirements of specialized industries, not-for-profit organizations, the SEC, or the Governm
Accounting Standards Board.
Most of the questions addressed in this checklist refer to specific authoritative literature and use the following acronyms:
—Statement of Financial Accounting Standards

FIN—Financial Accounting Standards Board Interpretation
CON—Financial Accounting Standards Board Statement of Financial Accounting Concepts
—Financial Accounting Standards Board Technical Bulletin
EITF—Consensus Position of the B Emerging Issues Task Force
—Accounting Research Bulletin
—Accounting Principles Board Opinion
QA— B Question-and-Answer documents
AU—Statement on Auditing Standards, Professional Standards, published by the AICPA
—AICPA Statement of Position of the Accounting Standards Division
PB—Practice Bulletin of the AICPA Accounting Standards Executive Committee
Some of the questions included in the checklist do not refer to any specific authoritative literature. Nevertheless, the disclosure
address are considered informative disclosures for users of the financial statements and usually are disclosed. These disclosur
generally accepted by auditors and, accordingly, are referenced as “Generally accepted practice” in this checklist.
This checklist is divided into the following four major financial statement parts:
Part I—Balance Sheet
Part II—Income Statement
Part III—Statement of Cash Flows
Part IV—Other Financial Statement Topics and Disclosures
Review the topics within each of the four major parts for possible disclosures. For each topic that is applicable, check the “Item
column; otherwise, check the “Item Not Present” column. For each topic checked “Item Present” complete the individual checkli
placing a checkmark in the appropriate “Yes,” “No,” or “N/A” (not applicable) column. Any item marked “No” should be explained
checklist or in a separate memorandum. It is not necessary to complete the individual checklist items for topics checked “Item N
Present.”
This Financial Statement Disclosure Checklist require updating to the relevant authoritative pronouncements:
TABLE OF CONTENTS
PART I—BALANCE SHEET
General Disclosures
Cash and Cash Equivalents
Accounts and Notes Receivables
Inventory
Investments—Debt and Equity Securities
Investments—Equity and Cost Methods
Property, Plant, and Equipment
Intangible Assets
Income Taxes
Current Liabilities
Debt Obligations and Credit Arrangements
Stockholders’ Equity
PART II—INCOME STATEMENT
Comprehensive Income
Earnings Per Share
Income Statement Presentation—Discontinued Operations
Income Statement Presentation—Extraordinary Items
Income Statement Presentation—Unusual or Infrequent Items
Revenues, Gains, Expenses, and Losses
PART III—STATEMENT OF CASH FLOWS
PART IV—OTHER FINANCIAL STATEMENT TOPICS AND DISCLOSURES
Accounting Changes—Changes in Accounting Estimate

Accounting Changes—Changes in Accounting Principle
Accounting Changes—Changes in Reporting Entity
Accounting Policies and Reclassifications
Advertising Costs
Business Combinations—Pooling Of Interests
Business Combinations—Purchase
Changing Prices
Commitments
Computer Software To Be Sold, Leased, Or Otherwise Marketed
Consolidated and Combined Financial Statements
Contingencies, Risks, Uncertainties, and Concentrations:
• Loss and Gain Contingencies
• Environmental Remediation Contingencies
• Risks, Uncertainties, and Concentrations
Development Stage Enterprises
Employee Stock Ownership Plans (Es)
Employee Termination Benefits and Other Costs To Exit an Activity (Including Certain Restructuring Costs)
Extinguishments of Liabilities
Financial Instruments—Derivatives and Hedging Activities
Financial Instruments—Other Disclosures
Foreign Operations and Currency Translation
Going-Concern Disclosures
Impairment of Certain Loans
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
Interest Cost
Interim Financial Reporting
Leases—Lessees
Leases—Lessors
Leases—Tax Leases
Lending Activities
Limited Liability Companies or Partnerships (LLCs or LLPs)
Long-Term Contracts
Nonmonetary Transactions
Pension and Postretirement Benefit Plans:
• Pension and Postretirement Defined Benefit Plans—Reduced Disclosure Requirements for Nonpublic Companies
• Pension and Postretirement Defined Benefit Plans—Public Companies (and Nonpublic Companies That Elect to Voluntarily P
Additional Disclosures)
• Pension and Postretirement Defined Contribution Plans—All Companies
• Pension and Postretirement Multiemployer Plans—All Companies
Postemployment Benefits
Prior-Period Adjustments (Correction of Errors)
Quasi-Reorganizations and Reorganizations Under The Bankruptcy Code:
• Quasi-Reorganizations
• Reorganizations Under The Bankruptcy Code
Related Party Transactions
Research and Development
Segment Information
Stock-Based Compensation
Subsequent Events
Termination Claims
Transfers and Servicing of Financial Assets
Troubled Debt Restructuring—Creditors
Troubled Debt Restructuring—Debtors
PART I—BALANCE SHEET
GENERAL DISCLOSURES
1. If a classified balance sheet is used, does the balance sheet contain classifications for:
a. Total current assets? (Generally accepted practice)
b. Total current liabilities? ( -6, 15)
2. Are items classified as current assets expected to be realized within one year (or within the entity’s operating cycle)? ( -43, C
3. If a company’s normal operating cycle is longer than one year and the balance sheet is classified, has disclosure been made
practice followed for the classification of current assets and liabilities, including the following
a. An estimate of the amounts not realizable or payable within one year, if practicable?
b. The amount of liabilities maturing in each year, if practicable, and applicable interest rates or range of rates?
4. Are contra-valuation accounts properly disclosed?
CASH AND CASH EQUIVALENTS
1. Are cash overdrafts not subject to offset by other cash accounts in the same financial institution classified as current liabilities
(Generally accepted practice)
2. Are checks from customers held as of the end of the period accounted for as cash? (Generally accepted practice)
3. Are checks payable to vendors held as of the end of the period accounted for as accounts payable? (Generally accepted pra
4. Are the following items excluded from the cash classification:
a. Cash amounts restricted as to withdrawal or use for other than current operations?
b. Cash amounts designated for expenditure in the acquisition or construction of noncurrent assets?
c. Cash amounts segregated for the liquidation of long-term debt?
5. Are significant concentrations of credit risk arising from cash deposits in excess of federally insured amounts disclosed?
6. Have the following disclosures been made for legally restrictive compensating balance agreements: (Generally accepted pra
a. The terms of the compensating balance agreement?
b. The amount of the compensating balance requirement?
c. The amount required to be maintained to assure future credit availability and the terms of that agreement?
d. The maintenance of compensating balances for the benefit of a related party?
ACCOUNTS AND NOTES RECEIVABLE
1. Are trade notes and accounts receivable reported under a heading separate from other receivables?
2. Are notes and accounts receivable from officers, employees, or affiliated companies reported under separate headings?
3. Are valuation allowances (such as uncollectible accounts and returned goods) deducted from the related accounts and notes
receivable?
4. Are unearned discounts (other than cash or quantity discounts and the like), interest, and finance charges included in receiva
deducted from the face of the related receivables?
5. Is the unamortized balance of loan origination, commitment, other fees and costs, and purchase premiums and discounts rec
as adjustments of yield pursuant to -91 reported on the company’s balance sheet as part of the related loan balance?
6. Do notes receivable that require the imputation of interest as required by -21 include the following presentation or disclosures
a. Is the related discount (premium) reported in the balance sheet as a direct deduction from (addition to) the face amount of th
b. Does the description include the effective interest rate?
c. Is the face amount of the notes disclosed in the financial statements or in the notes?
d. Is the amortization of discount or premium classified as part of interest expense?
e. Are the related issuance costs presented on the balance sheet as deferred costs?
7. Have the required disclosures been made for transfers of receivables? (See “Transfers and Servicing of Financial Assets”)
8. Are disclosures made with respect to guarantees to repurchase receivables or related property that has been sold or otherwi
assigned?
9. Are significant concentrations of credit risk arising from receivables disclosed? (See “Financial Instruments—Other Disclosur
3 and 6)
10. Have the disclosures required by -118 been made for impaired loans? (See “Impairment of Certain Loans”)
11. Have the applicable fair value disclosures been made? (See “Financial Instruments—Other Disclosures,” Items 4 and 7)
INVENTORY
1. Are major categories of inventories (raw materials, work in process, finished goods, and supplies) presented?
2. Have the basis for carrying inventories and the method of determining cost been disclosed?
3. Are valuation allowances for inventory losses deducted from related inventory balances?
4. If material, are losses resulting from the writedown from cost to market disclosed?
5. If the LIFO inventory method is used, is the difference between the LIFO amount and replacement cost (LIFO reserve) disclo
(Generally accepted practice)
6. Are amounts from the liquidation of a LIFO layer disclosed? (Generally accepted practice)
7. Has overhead been allocated to inventory in accordance with GAAP?
8. Have material losses on inventory purchase commitments been recorded and properly disclosed?
INVESTMENTS—DEBT AND EQUITY SECURITIES
1. For securities classified as available-for-sale and separately for securities classified as held-to-maturity, have the following di
been made, by major security type, as of each date for which a balance sheet is presented:
a. The aggregate fair value?
b. Gross unrealized holding gains?
c. Gross unrealized holding losses?
d. Amortized cost basis?
NOTE: Financial institutions should disclose the above information for the following types of securities: (1) equity securities, (2)
securities issued by the U.S. Treasury and other U.S. government corporations and agencies, (3) debt securities issued by stat
United States and political subdivisions of the states, (4) debt securities issued by foreign governments, (5) corporate debt secu
mortgage-backed securities, and (7) other debt securities.
2. For investments in debt securities classified as available-for-sale and separately for securities classified as held-to-maturity, h
following disclosures been made:
a. Information about the contractual maturities of the securities as of the date of the most recent balance sheet presented? (No
information may be combined in appropriate groupings for companies other than financial institutions.)
b. The basis for allocation of securities not due at a single maturity date, if such securities are allocated over several maturity gr
NOTE: Financial institutions should disclose the fair value and the amortized cost of debt securities based on at least the follow
maturity groupings: (1) within one year, (2) after 1 year through 5 years, (3) after 5 years through 10 years, and (4) after 10 yea
3. Have the following disclosures been made for each period for which an income statement is presented:
a. The proceeds from sales of available-for-sale securities and the gross realized gains and the gross realized losses on those
b. The basis on which cost was determined in computing realized gain or loss (i.e., specific identification, average cost, or other
used)?
c. The gross gains and gross losses included in earnings from transfers of securities from the available-for-sale category into th
category? (Note: Such transfers should be rare.)
d. The change in net unrealized holding gain or loss on available-for-sale securities that has been included in other comprehen
income during the period?
e. The change in net unrealized holding gain or loss on trading securities that has been included in earnings during the period?
4. For any sales of or transfers from securities classified as held-to-maturity, have the following disclosures been made for each
which an income statement is presented:
a. The amortized cost amount of the sold or transferred security?
b. The related realized or unrealized gain or loss at the date of sale or transfer?
c. The circumstances leading to the decision to sell or transfer the security?
5. Have the following been disclosed about futures contracts accounted for as hedges:
a. Nature of the assets, liabilities, firm commitments, or anticipated transactions that are hedged with futures contracts?
b. Method of accounting for futures contracts including a description of the events or transactions that cause changes in the con
values to be recognized in income?
6. Has the policy for accounting for the premium paid to acquire an option classified as held-to-maturity or available-for-sale bee
disclosed? (EITF 96-11)
7. Have the required disclosures been made for transfers of financial assets? (See “Transfers and Servicing of Financial Assets
8. For securities classified as available-for-sale, have the following disclosures been made, by major security type, as of each d
which a balance sheet is presented:
b. Total gains for securities with net gains in accumulated other comprehensive income?
c. Total losses for securities with net losses in accumulated other comprehensive income?
NOTE: Financial institutions should disclose the above information for the following types of securities: (1) equity securities, (2)
securities issued by the U.S. Treasury and other U.S. government corporations and agencies, (3) debt securities issued by stat
United States and political subdivisions of the states, (4) debt securities issued by foreign governments, (5) corporate debt secu
mortgage-backed securities, and (7) other debt securities.
9. For securities classified as held-to-maturity, have the following disclosures been made, by major security type, as of each da
which a balance sheet is presented:
b. Gross unrecognized holding gains?
c. Gross unrecognized holding losses?
d. Net carrying amount?
e. Gross gains and losses in accumulated other comprehensive income for any derivatives that hedged the forecasted acquisiti
held-to-maturity securities?
10. For investments in debt securities classified as available-for-sale and separately for securities classified as held-to-maturity,
a. Information about the contractual maturities of the securities as of the date of the most recent balance sheet presented? (No
information may be combined in appropriate groupings for companies other than financial institutions.)
b. The basis for allocation of securities not due at a single maturity date, if such securities are allocated over several maturity gr
NOTE: Financial institutions should disclose the fair value and the net carrying amount (if different from fair value) of debt secur
on at least the following four maturity groupings: (1) within one year, (2) after 1 year through 5 years, (3) after 5 years through 1
and (4) after 10 years.
a. The proceeds from sales of available-for-sale securities and the gross realized gains and the gross realized losses on those
b. The method used to determine the cost of a security sold or the amount reclassified out of accumulated other comprehensive
into earnings (i.e., specific identification, average cost, or other method used)?
c. The gross gains and gross losses included in earnings from transfers of securities from the available-for-sale category into th
category? (Note: Such transfers should be rare.)
d. The amount of the net unrealized holding gain or loss on available-for-sale securities that has been included in accumulated
comprehensive income for the period?
e. The amount of gains and losses reclassified out of accumulated other comprehensive income into earnings for the period?
f. The portion of trading gains and losses for the period that relates to trading securities still held at the balance sheet date?
12. For any sales of or transfers from securities classified as held-to-maturity, have the following disclosures been made for eac
for which an income statement is presented:
a. The net carrying amount of the sold or transferred security?
b. The net gain or loss in accumulated other comprehensive income for any derivative that hedged the forecasted acquisition o
to-maturity security?
c. The related realized or unrealized gain or loss at the date of sale or transfer?
d. The circumstances leading to the decision to sell or transfer the security?
13. Has the policy for accounting for the premium paid to acquire an option classified as held-to-maturity or available-for-sale be
disclosed? (EITF 96-11)
14. Have the required disclosures been made for transfers of financial assets? (See “Transfers and Servicing of Financial Asse
INVESTMENTS—EQUITY AND COST METHODS
1. Have the following disclosures been made with respect to investments in common stock of 20% or more when the equity me
used: (-18, 20)
a. The name of each investee and percentage of ownership of common stock?
b. The accounting policies of the investor with respect to the investment in common stock?
c. The difference, if any, between the amount of the carrying value of the investment and the amount of underlying equity in net
and the accounting treatment of the difference?
d. The aggregate market value of investments for which quoted market prices are available (not required for investments in com
of subsidiaries)?
e. When investments in common stock of corporate joint ventures or other investments accounted for under the equity method
aggregate, material, has summarized information of assets, liabilities, and results of operations of the investees been presented
or separate statements, either individually or in groups?
f. Material effects of possible conversions of outstanding convertible securities, exercise of outstanding options and warrants, a
contingent issuances that could have a significant effect on the investor’s share of reported earnings or losses?
2. Is the reason for not using the equity method when the investor company owns 20% or more of the voting stock of the invest
company, and the name of the significant investee, disclosed?
3. Is the reason for using the equity method when the investor company owns less than 20% of the voting stock of the investee
and the name of the significant investee, disclosed?
4. Is the investment presented in the balance sheet as a single amount rather than as proportional amounts of specific assets a
liabilities of the investee company?
5. Is the equity in the earnings of the investee company presented in the investor company’s income statement as a single amo
except for the proportional amount of gains/losses from the disposition of a business segment, extraordinary gains/losses, and
cumulative effects of changes in accounting principles?
6. Is the proportional share of prior-period adjustments made by the investee company, if any, presented as part of the retained
of the investor company?
7. Is the policy disclosed for determining the amount of equity method losses after the common stock investment has been r
zero as a result of previous losses?
PROPERTY, PLANT, AND EQUIPMENT
1. Have the following disclosures been made with respect to depreciable assets:
a. The basis of determining the amounts shown in the balance sheet, such as cost?
b. Balances of major classes of depreciable property presented by nature or function at the balance sheet date?
c. Accumulated depreciation presented by major classes of assets or in total at the balance sheet date?
d. A general description of the method(s) used to compute depreciation for major classes of depreciable assets?
e. The amount of depreciation expense for each year for which an income statement is presented?
2. Is property, plant, and equipment that is idle or held for sale identified and presented separately from property, plant, and equ
currently used in the business? (Generally accepted practice)
3. Is the amount of interest capitalized as part of the cost of plant and equipment disclosed?
4. Are property and equipment pledged as security for loans disclosed?
5. Have the following optional disclosures been made, if they are considered useful: (Note: Although not required by GAAP, the
disclosures are in some cases made by companies when they are considered useful to a better understanding of the company’
accounting policies):
a. The accounting treatment for maintenance and repairs, betterments, and renewals?
b. The policy for adjusting accumulated depreciation when property and equipment is disposed of, and the treatment of any gai
on disposition?
c. The rates or lives used in computing depreciation?
6. If property, plant, and equipment are impaired or are to be disposed of, have the disclosures required by -121 been made? (
“Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of”)
INTANGIBLE ASSETS
1. Is the amortization method and amortization period for specific intangible assets disclosed? (-17, 30)
2. If an intangible is not amortized, is the reason for the lack of amortization disclosed? (Generally accepted practice)
3. If the period over which an intangible is amortized has been significantly reduced, has the reason for the reduction been disc
17, 31)
4. If intangible assets are impaired or are to be disposed of, have the disclosures required by -121 been made? (See “Impairm
Long-Lived Assets and Long-Lived Assets to Be Disposed Of”)
INCOME TAXES
1. If a classified balance sheet is presented, have the following been disclosed:
a. Income taxes currently payable or refundable?
b. Current and noncurrent deferred tax assets, including the valuation allowance, if any?
c. Current and noncurrent deferred tax liabilities?
2. Have the following components of the net deferred tax liability or asset recognized in the balance sheet been disclosed:
a. The total of all deferred tax liabilities for taxable temporary differences?
b. The total of all deferred tax assets for deductible temporary differences, operating loss carryforwards, and tax credit carryforw
c. The total valuation allowance recognized for deferred tax assets?
3. Has the net change during the year in the total valuation allowance account been disclosed?
4. Are the following components (where applicable) of income tax expense related to continuing operations for each year prese
-109, 45)
a. Current tax expense or benefit?
b. Deferred tax expense or benefit (exclusive of items listed below)?
c. Investment tax credits?
d. Government grants (to the extent they have been used to reduce income tax expense)?
e. Benefits arising from operating loss carryforwards?
f. Tax expense arising from allocating tax benefits either directly to contributed capital or to reduce goodwill or other noncurrent
assets of an acquired company?
g. Adjustments to a deferred tax liability or asset arising from changes in tax laws, tax rates, or the entity’s tax status?
h. Adjustments to the beginning balance in the valuation allowance account related to deferred tax assets that arise due to cha
amount of assets expected to be realized?
5. Is income tax expense or benefit (intra-period income tax allocation) for each of the following disclosed for each year for whic
items are presented: ( -109, 46; -9, 26; -20, 20)
a. Continuing operations?
b. Discontinued operations?
c. Extraordinary items?
d. The cumulative effect of accounting changes?
e. Prior-period adjustments?
f. Items charged or credited directly to shareholders’ equity?
g. Other comprehensive income
6. For a particular tax-paying component of an enterprise and within a particular tax jurisdiction (e.g., federal, state, or local): ( -
a. Have all current deferred tax liabilities and assets been offset and presented as a single amount?
b. Have all noncurrent deferred tax liabilities and assets been offset and presented as a single amount?
c. Have the net current deferred tax asset or liability and the net noncurrent deferred tax asset or liability within each tax jurisdic
shown separately for each tax-paying component?
7. If the entity is a member of a group that files a consolidated tax return, are the following disclosures made in its separately is
financial statements: ( -109, 49)
a. The amount of current and deferred tax expense for each statement of income presented?
b. The amount of any tax-related balances due to or from affiliates as of the date of each balance sheet presented?
c. The principal provisions of the method by which the consolidated amount of current and deferred tax expense is allocated to
of the group, and the nature and effect of any changes in that method (and in determining related balance to or from affiliates) d
years for which the disclosures in a. and b. above are presented?
8. Have types of significant temporary differences and carryforwards been disclosed?
9. Has the nature of significant reconciling items been disclosed between (a) the reported amount of income tax expense attribu
continuing operations for the year and (b) the amount of income tax expense that would result from applying domestic federal s
tax rates to pretax income from continuing operations? (Note: a numerical reconciliation, such as the one described in 15 b. bel
required for nonpublic companies)
10. Have the amounts and expiration dates for operating loss and tax credit carryforwards for tax purposes been disclosed? ( -1
11. Has the portion of the valuation allowance for deferred tax assets for which subsequently recognized tax benefits will be allo
reduce goodwill or other noncurrent intangible assets of an acquired entity or directly to contributed capital been disclosed?
12. Have the nature and effect of any other significant matters affecting comparability of information for all periods presented be
disclosed if not otherwise evident from the disclosures discussed in this section?
13. Is the method of accounting for the investment tax credit (deferral method or flow-through method) and related amount used
determination of income tax expense disclosed?
14. Are proper disclosures made when a change in an entity’s tax status becomes effective after year end but before the financ
statements are issued?
15. Have the following required disclosures been made for public companies (optional for nonpublic companies):
a. The approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of de
liabilities and assets (before allocation of valuation allowance)? ( -109, 43)
b. A reconciliation (using percentages or dollar amounts) of the reported amount of income tax expense attributable to continuin
operations for the year to the amount of income tax expense that would result from applying domestic federal statutory tax rates
income from continuing operations? (Note: If alternative tax systems exist, such as the U.S. alternative minimum tax, the regula
should be used) ( -109, 47)
16. Are the following items disclosed when a deferred tax liability is not recognized because of the exceptions allowed by -23 (i.
undistributed earnings of subsidiaries or corporate joint ventures, bad debt reserves of savings and loan associations, or policy
surplus of life insurance companies) or for deposits in statutory reserve funds by U.S. steamship companies: ( -109, 44)
a. Description of temporary differences that did not create a deferred tax liability and the event(s) that would cause the tempora
differences to become taxable?
b. Cumulative amount of each type of temporary difference?
c. Amount of unrecognized deferred tax liability arising from temporary differences related to investments in foreign subsidiaries
foreign corporate joint ventures that are considered permanent? (If it is not practical to compute the amount, then that fact shou
stated.)
d. Amount of unrecognized deferred tax liability for temporary differences related to (1) undistributed domestic earnings, (2) bad
reserve for tax purposes of U.S. savings and loan associations or other qualified thrift lenders, (3) the policyholders’ surplus of a
insurance enterprise, and (4) statutory reserve funds of a U.S. steamship enterprise?
17. For companies that recognize the tax benefits of prior deductible temporary differences and carryforwards in income rather
contributed capital (i.e., companies that have previously adopted -96 and effected a quasi-reorganization that involved only the
elimination of a deficit in retained earnings), have the following disclosures been made: ( -109, 39)
a. The date of the quasi-reorganization?
b. The manner of reporting the tax benefits and that it differs from present accounting requirements for other entities?
c. The effect of those tax benefits on income from continuing operations, income before extraordinary items, and net income (a
related per share amounts, if applicable)?
18. Has disclosure been made of the amount of income tax benefit realized from the exercise of employee stock options, if the
that benefit is credited to equity but is not presented as a separate line item in the statement of changes in stockholders' equity
statement of cash flows?
CURRENT LIABILITIES
1. Are liabilities due on demand, or within a year from the balance-sheet date (or operating cycle, if longer), presented as curren
and segregated by type?
2. With respect to accounting for compensated absences:
a. Are liabilities appropriately accrued and reported for employees’ compensation for future absences?
b. If the entity has not accrued a liability for compensated absences because the amount cannot be reasonably estimated, has
been disclosed?
3. With respect to real and personal property taxes

a. Is an accrued liability, whether estimated or definitely known, included in current liabilities?
b. If estimates are used for accrual and are subject to a substantial measure of uncertainty, has the liability been disclosed as e
DEBT OBLIGATIONS AND CREDIT ARRANGEMENTS
1. Are significant categories of debt (e.g., notes payable to banks, related-party notes, capital lease obligations) and the terms,
rates, maturity rates, and subordinate features disclosed? (Generally accepted practice)
2. Are restrictive covenants (e.g., restrictions on additional borrowings, obligations to maintain minimum working capital or restr
dividends) and pledged assets disclosed?
3. Are the following disclosures made for debt securities that carry an unreasonable interest rate or are non-interest-bearing:
a. The unamortized discount or premium that is reported in the balance sheet as a direct deduction from or as an addition to the
amount of the note?
b. The face amount of the note?
c. The effective interest rate?
d. Amortization of discount or premium reported as interest in the income statement?
e. Related debt issue costs that are reported as deferred charges in the balance sheet?
4. Are the following disclosures made for each of the five years following the date of the latest balance sheet presented: ( -47,
a. The combined aggregate amount of maturities and sinking fund requirements for all long-term borrowings?
b. The amount of redemption requirements for all issues of capital stock that are redeemable at fixed or determinable prices on
determinable dates, separately by issue or combined?
5. If a short-term obligation expected to be refinanced on a long-term basis is excluded from current liabilities, are the following
disclosures made: ( -6, 15)
a. A general description of the financing agreement?
b. The terms of any new obligation incurred or expected to be incurred or equity securities issued or expected to be issued as a
the refinancing?
6. Are current maturities of long-term debt presented as current liabilities?
7. Are debt obligations that, by their terms, are due on demand or will be due on demand within one year (or operating cycle, if
from the balance sheet date, even though liquidation may not be expected within that period, included in current liabilities?
8. Do current liabilities include long-term obligations that are or will be callable by the creditor either because the debtor’s violat
provision of the debt agreement at the balance sheet date makes the obligation callable or because the violation, if not cured w
specified grace period, will make the obligation callable unless one of the following conditions is met:
a. The creditor has waived or subsequently lost the right to demand repayment for more than one year (or operating cycle, if lon
the balance-sheet date?
b. For long-term obligations containing a grace period within which the debtor may cure the violation, it is probable that the viola
cured within that period, thus preventing the obligation from becoming callable?
c. If an obligation under (b) above is classified as a long-term liability, are the circumstances disclosed?
9. Are the conversion features and descriptions of convertible debt adequately disclosed and do they explain the pertinent right
privileges of the convertible debt?
10. Have the following disclosures been made when events of default under a credit agreement have occurred at any time prior
date of the accountant’s report and have not been cured or waived or a valid waiver has been obtained for only a stated period
a. The nature and amount of the default?
b. The period for which the violation has been waived?
11. Are significant changes in long-term obligations subsequent to the date of the financial statements disclosed?
12. For unrecorded, unconditional purchase obligations, have the following disclosures been made:
a. The nature and term of the obligation?
b. The amount of the fixed and determinable portion of the obligation as of the date of the latest balance sheet presented in the
and, if determinable, for each of the five succeeding fiscal years?
c. The nature of any variable components of the obligation?
d. The amounts purchased under the obligation for each period for which an income statement is presented?
e. The amount of imputed interest necessary to reduce the unconditional purchase obligation to its present value (optional discl
13. For recorded, unconditional purchase obligations, have the following disclosures been made for each of the five years follow
date of the latest balance sheet presented:
a. The aggregate amounts of payments for unconditional purchase obligations?
b. The combined aggregate amount of maturities and sinking fund requirements?
c. The amount of redemption requirements for all issues of capital stock that are redeemable at fixed or determinable prices on
determinable dates, separately by issue or combined?
14. Have the applicable fair value disclosures been made? (See “Financial Instruments—Other Disclosures,” Items 4 and 7)
STOCKHOLDERS’ EQUITY
1. Are the following disclosures made for each class of capital stock: (Generally accepted practice)
a. Shares authorized, issued, and outstanding?

b. Par value or stated value?
c. The number of shares reserved for future issuance and the purpose for such reservation?
2. Are the following disclosures made for preferred stock or other senior stock that has a preference in involuntary liquidation co
in excess of the par or stated values of the shares:
a. The liquidation preference of the stock (the relationship between the preference in liquidation and the par or stated value of t
(That disclosure should be made in the equity section of the balance sheet in the aggregate, rather than the notes.)
b. The aggregate or per-share amounts at which preferred stock may be called or is subject to redemption through sinking-fund
operations or otherwise?
c. The aggregate and per-share amounts of arrearages in cumulative preferred dividends?
3. Have the following disclosures been made of the rights and privileges of the various securities outstanding:
a. Dividend, liquidation, or call preferences?
b. Participation rights?
c. Call prices and dates?
d. Conversion or exercise prices or rates and pertinent dates?
e. Sinking fund requirements?
f. Unusual voting rights?
g. Significant terms of contracts to issue additional shares?
4. Have the number of shares issued on conversion, exercise, or otherwise during at least the most recent annual fiscal period
subsequent interim period presented been disclosed?
5. Is there a disclosure for each of the five years following the date of the latest balance sheet presented for the amount of rede
requirements for all issues of capital stock redeemable at fixed or determinable prices on fixed or determinable dates?
6. Are dividends declared but not yet paid at the balance sheet date classified as a current liability?
7. Are restrictions on dividend payments disclosed?
8. Are appropriations for loss contingencies shown in the stockholders’ equity section and clearly identified as such?
9. Are disclosures made of the nature and extent to which retained earnings is restricted?
10. Are the following disclosures relative to changes in stockholders’ equity made for each period in which both a balance shee
statement of income are presented (the disclosures may be in the form of a separate statement, in a note to the financial statem
the body of the balance sheet): (-12, 10)
a. Changes in the separate accounts comprising stockholders’ equity?
b. Changes in the number of shares of equity securities during at least the most recent annual fiscal period?
11. Are stock subscriptions receivable presented as a contra-equity account (or if shown as an asset, is the receivable clearly la
segregated from any other type of asset)? (Generally accepted practice)
12. Are the following disclosures made with respect to treasury stock: (-6, 13)
a. The method used to account for the treasury stock?
b. The number of shares of treasury stock held?
c. Accounting treatment in accordance with state law if it is at variance with GAAP?
13. If treasury stock is acquired for purposes other than retirement (formal or constructive), or if the ultimate disposition has not
decided, has it been accounted for in one of the following ways:
a. Has the cost been shown separately as a deduction from the total of capital stock, additional paid-in capital, and retained ear
b. Has the par value of the shares been charged to the specific stock issue and the excess of purchase price over the par value
between additional paid-in capital and retained earnings? (Alternatively, the excess may be charged entirely to retained earning
14. If treasury stock of the entity is shown as an asset, have the circumstances for such classification been disclosed?
15. If an agreement to purchase treasury shares also involves the receipt or payment of consideration in exchange for stated or
rights or privileges, has the purchase price been allocated properly and the accounting treatment disclosed?
16. Is disclosure made of capital shares reserved for future issuance in connection with a business combination
17. If a stock dividend, split, or reverse split occurs after the date of the latest balance sheet presented, but before the issuance
financial statements have the following disclosures been made: (Generally accepted practice)
a. An explanation of the stock dividend, split, or reverse split and the date?
b. The retroactive effect provided in the balance sheet?
18. Have the following disclosures been made for warrants or rights outstanding as of the most recent balance sheet date: (Gen
accepted practice)
a. The title and aggregate amount of securities called for by warrants or rights outstanding?
b. The period during which warrants or rights are exercisable?
c. The exercise price?
19. Is the accumulated balance of other comprehensive income displayed separately from retained earnings and additional paid
in the equity section of the balance sheet?
20. Is each classification of accumulated other comprehensive income presented in one of the following manners:
a. On the face of the balance sheet as a separate component of equity?
b. On the statement of changes in stockholders’ equity?

c. In the notes to the financial statements?
21. If -133 (Accounting for Derivative Instruments and Hedging Activities) has been adopted, have the following been separate
disclosed as part of the disclosures of accumulated other comprehensive income: ( -133, 47) (Note: -133 is effective for all fisc
of fiscal years beginning after June 15, 2000)
a. The beginning and ending accumulated derivative gain or loss?
b. The related net change associated with current period hedging transactions?
c. The net amount of any reclassification into earnings?
PART II—INCOME STATEMENT
COMPREHENSIVE INCOME
1. Are elements of comprehensive income displayed in one of the following three alternative presentation formats:
a. In a single statement of income and comprehensive income that extends a traditional income statement to include (following
income) the elements of other comprehensive income and the total of comprehensive income?
b. In a separate statement of comprehensive income which begins with net income and includes the elements of other compreh
income and then a total of comprehensive income?
c. In the statement of changes in stockholders’ equity?
2. Are components of other comprehensive income shown either (a) net of related tax effects, or (b) before related tax effects w
amount shown for the aggregate income tax expense or benefit related to the total of other comprehensive income items?
3. Has the amount of income tax expense or benefit allocated to each component of other comprehensive income, including
reclassification adjustments, been disclosed either (a) on the face of the financial statement in which the components are displa
in the notes to the financial statements?
4. Have reclassification adjustments for each classification of other comprehensive income (other than minimum pension liabilit
adjustments) been disclosed either (a) on the face of the financial statement in which comprehensive income is reported, or (b)
notes to the financial statements?
5. Has the accumulated balance of other comprehensive income been reported separately from retained earnings and addition
capital in the equity section of the balance sheet?
6. Has the ending accumulated balances for each item in accumulated other comprehensive income been disclosed either (a) o
of the balance sheet, (b) in a statement of changes in equity, or (c) in the notes to the financial statements?
7. If -133 (Accounting for Derivative Instruments and Hedging Activities) has been adopted, have the following disclosures bee
a. The net gain or loss on derivative instruments designated as cash flow hedging instruments (including qualifying foreign curr
flow hedges) reported as a separate classification within other comprehensive income?
b. As part of the disclosures of accumulated other comprehensive income:
(1) The beginning and ending accumulated derivative gain or loss?

(2) The related net change associated with current period hedging transactions?
(3) The net amount of any reclassification into earnings?
EARNINGS PER SHARE
Note: Nonpublic companies are NOT required to present earnings per share.
a. A reconciliation of the numerators and denominators of the basic and diluted EPS computations for income from continuing o
including the individual income and share amount effects of all securities that affect EPS. Insignificant reconciling items need no
itemized as part of the reconciliation and can be aggregated? ( -128, pars. 40, 138)
b. The effect that has been given to preferred dividends in determining the income available to common stockholders in compu
EPS? ( -128, 40)
c. Securities (including those issuable pursuant to contingent stock agreements) that could potentially dilute EPS in the future, b
were not included in the calculation of diluted EPS because to do so would have been antidilutive for the periods presented? ( -
2. For the latest period for which an income statement is presented, have disclosures been made of any transaction that occurs
end of the most recent period but before the issuance of the financial statements that would have changed materially the numb
common shares or potential common shares outstanding at the end of the period if the transaction had occurred before the end
period? ( -128, 41)
3. When prior EPS amounts have been restated in compliance with an accounting standard requiring restatement, has disclosu
made of the per share effect of the restatement? ( -128, pars. 57-58)
4. When the number of common shares outstanding increases as a result of a stock dividend or stock split, or decreases as a r
reverse stock split, have the computations of basic and diluted EPS been adjusted retroactively for all periods presented to refle
changes in the number of shares, and has that fact been disclosed?
5. If changes in common stock resulting from stock dividends, stock splits, or reverse stock splits occur after the close of the pe
before the issuance of the financial statements, have the per-share computations for all periods presented been based on the n
number of shares, and has that fact been disclosed?
INCOME STATEMENT PRESENTATION—DISCONTINUED OPERATIONS
1. Are the results of continuing operations reported separately from discontinued operations?
2. Are gains or losses from disposal of a segment of a business reported in conjunction with the related results of discontinued
operations?
3. Are the results of operations of a segment that has been or will be discontinued reported separately as a component of incom
extraordinary items and the cumulative effect of accounting changes using the following captions?
a. Income from continuing operations before income taxes?
b. Provision for income taxes?
c. Income from continuing operations?

d. Income (loss) from operations of discontinued segment, less applicable income taxes?
e. Loss on disposal of discontinued segment, including provisions for operating losses during phase-out period, less applicable
taxes?
4. Are revenues applicable to the discontinued operations disclosed in a related note?
5. Are the results of operations of a disposed segment, less applicable income taxes, presented as a separate component of in
before extraordinary items on income statements of current and prior years that include results of operations prior to the measu
date? (-30, 13)
6. Are the following disclosures made for the period encompassing the measurement date?
a. The identity of the segment of business that has been or will be discontinued?
b. The expected disposal date, if known?
c. The expected manner of disposal?
d. A description of the remaining assets and liabilities of the segment at the balance-sheet date?
e. The income or loss from discontinued operations and any proceeds from disposal of the segment during the period from the
measurement date to the date of the balance sheet?
7. Are the following disclosures made for years subsequent to the measurement date that include the period of disposal? (-30,
a. Identification of the segment of business that has been discontinued?
b. The disposal date?
c. The manner of disposition?
d. A description of the remaining assets and liabilities, if any, of the segment at the balance-sheet date?
e. The income or loss from discontinued operations and any proceeds from disposal of the segment during the period from the
measurement date to the date of the balance sheet compared with prior estimates?
8. For each adjustment in the current period of a loss on disposal of a business segment that was reported in the prior period, h
following been disclosed in the current period? (-30, 25; -16, 6)
a. Year of origin, nature, and amount?
b. Classified separately in the current period as a gain or loss on disposal of a segment?
INCOME STATEMENT PRESENTATION—EXTRAORDINARY ITEMS
1. Are items unusual in nature and infrequent in occurrence classified as extraordinary items?
2. Are the proportional amounts of an investee company’s extraordinary items presented on the face of the investor company’s
statement as extraordinary if they are material?
3. Are descriptive captions and the amounts for individual extraordinary events or transactions presented (preferably) on the fac
income statement or disclosed in related notes?
4. Are the nature of an extraordinary event or transaction and the principal items entering into the computation of the gain or los
described?
5. Are the following captions used when there is an extraordinary item (and there are no discontinued operations or changes in
accounting principles)?
a. Income before extraordinary items?
b. Extraordinary item (less applicable income taxes)?
c. Net income?
d. Earnings per share amounts before extraordinary items and net income, where applicable?
6. Are extraordinary gains and losses arising from extinguishments of debt described sufficiently to enable users of financial sta
evaluate their significance?
7. Are the following disclosures made on the face of the income statement or in a single note to the financial statements (or ade
cross-referenced if more than one note is used), for extraordinary gains and losses arising from extinguishments of debt
a. Description of the transaction, including the sources of any funds used to extinguish debt if it is practicable to identify the sou
b. Income tax effect in the period of extinguishment?
c. Per-share amount of the aggregate gain or loss, net of related income tax effect?
8. Are the following transactions or events not reported as extraordinary items:
a. Writedown or writeoff of receivables, inventories, equipment leased to others, or intangible assets?
b. Gains or losses from exchange or translation of foreign currencies, including those relating to major devaluations and revalua
c. Gains or losses on disposal of a segment of a business?
d. Other gains or losses from sale or abandonment of property, plant, or equipment used in the business?
e. Effects of a strike, including those against competitors and major suppliers?
f. Adjustments of accruals on long-term contracts?
9. Are gains or losses arising from the disposal of a significant part of the assets or a separable segment of a previously separa
enterprise originally accounted for as a pooling-of-interests classified as an extraordinary item if (a) the profit or loss is material
to the net income of the combined enterprise and (b) the disposition is within two years after the combination is consummated?
10. Are additional gains or losses arising in the current period but related to transactions or events that were previously reporte
extraordinary items presented in the following manner:
a. Separately disclosed as to year of origin, nature, and amount?
b. Classified separately in the current period as an extraordinary item?
INCOME STATEMENT PRESENTATION—UNUSUAL OR INFREQUENT ITEMS
1. Are material transactions that are either unusual in nature or infrequent in occurrence (but not both and, therefore, not meetin
criteria for extraordinary items) not classified as extraordinary items?
2. Are material transactions that are either unusual in nature or infrequent in occurrence (but not both) presented in the followin
(-30, 26)
a. Reported as a separate component of income from continuing operations?
b. Nature and financial effects disclosed on the income statement (preferably) or in a note to the financial statements?
c. Not reported in a manner that would imply that the item is extraordinary?
d. Not reported on an earnings-per-share basis?
REVENUES, GAINS, EXPENSES, AND LOSSES
1. Is the statement of operations classified into appropriate functional areas such as sales, costs of goods sold, operating expen
other items? (Generally accepted practice)
2. Are income before income taxes and net income identified on the income statement? (Generally accepted practice)
3. Have significant amounts of discounts, returns, and allowances been disclosed? (Generally accepted practice)
4. Are cost of goods sold and expenses shown net of purchase discounts? (Generally accepted practice)
5. Have sales with significant rights of return been excluded from the income statement, and disclosed if significant?
PART III—STATEMENT OF CASH FLOWS
1. Is a statement of cash flows presented as a basic financial statement for each period for which an income statement is prese
2. Is the statement presented in a manner to reconcile beginning and ending balances of cash (or cash and cash equivalents)?
3. Are the beginning and ending balances of cash (or cash and cash equivalents) as shown in the statement of cash flows the s
amounts as similarly titled line items or subtotals in the balance sheet?
4. Is the accounting policy for determining which items are treated as cash equivalents disclosed?
5. Are gross amounts of cash receipts and cash payments presented in the statement of cash flows, except for certain items th
quick turnover, large amounts, or short maturities, which may be presented on a net basis?
6. Are cash flows classified as resulting from operating, investing, and financing activities?
7. Are the following items classified as cash inflows from investing activities:
a. Receipts from collections or sales of (1) loans made by the enterprise and (2) other entities’ debt instruments (other than cas
equivalents and certain debt instruments that are acquired specifically for resale) that were purchased by the enterprise?
b. Receipts from sales of equity instruments of other enterprises (other than certain equity instruments carried in a trading acco
from returns on investment in those instruments?
c. Receipts from sales of property, plant, and equipment, and other productive assets?
8. Are the following items classified as cash outflows from investing activities
a. Disbursements for loans made by the enterprise and payments to acquire debt instruments of other entities, other than cash
equivalents and certain debt instruments that are acquired specifically for resale?
b. Payments to acquire equity instruments of other enterprises, other than certain equity instruments carried in a trading accoun
c. Payments at the time of purchase or soon before or after purchase to acquire property, plant, and equipment and other produ
assets?
9. Are the following items classified as cash inflows from financing activities:
a. Proceeds from issuing equity instruments?
b. Proceeds from issuing bonds, mortgages, notes, and from other short-term or long-term borrowings?
10. Are the following items classified as cash outflows from financing activities
a. Payments of dividends or other distributions to owners, including outlays to reacquire the enterprise’s instruments?
b. Repayments of amounts borrowed?
c. Other principal payments to creditors who have extended long-term credit?
11. At a minimum, are the following classes of operating cash receipts and payments separately reported when the direct meth
to compute cash flows provided or used by operating activities:
a. Cash collected from customers, including lessees, licensees, and other customers?
b. Interest and dividends received?
c. Other operating cash receipts, if any?
d. Cash paid to employees and other suppliers of goods or services, including suppliers of insurance, advertising, and the like?
e. Interest paid?
f. Income taxes paid?
g. Other operating cash payments, if any?
12. If the indirect method is used to compute cash flows provided or used by operating activities, is a reconciliation of net incom
operating cash flows presented on the face of the statement of cash flows or in a separate schedule? ( -95, 6)
13. If the direct method is used to compute cash flows provided or used by operating activities, is a reconciliation of net cash flo
operating activities provided in a separate schedule? ( -95, 29)
14. Is information about noncash investing and financing activities presented in a narrative or summarized in a schedule? ( -95,
15. If the indirect method of reporting cash flows from operating activities is used, are amounts of interest paid (net of amounts
capitalized) and income taxes paid during the period disclosed?
16. If cash flows from derivative instruments that are accounted for as fair value hedges or cash flow hedges are classified in th
category as the cash flows from the items being hedged, is that accounting policy disclosed?
PART IV—OTHER FINANCIAL STATEMENT TOPICS AND DISCLOSURES
ACCOUNTING CHANGES—CHANGES IN ACCOUNTING ESTIMATE
1. For a change in accounting estimate that affects several future periods (e.g., change in service lives of depreciable assets, a
assumptions affecting pension costs), has the effect on income before extraordinary items and net income (and on related per s
amounts when presented) of the current period been disclosed?
2. For a change in accounting estimate made each period in the ordinary course of accounting for items such as uncollectible a
inventory obsolescence, has disclosure been made of the effect, if material, on income before extraordinary items and net incom
related per share amounts when presented)?
ACCOUNTING CHANGES—CHANGES IN ACCOUNTING PRINCIPLE
1. Are the following disclosures made for a change in accounting principle in the year in which the change occurs:
a. The nature of the change in accounting principle?
b. The justification for the change in accounting, including a clear explanation of why the newly adopted accounting principle is
preferable?
c. The effect of the change in accounting principle on income before extraordinary items and net income (and related per share
when presented)?
2. Are the effects of the following changes presented by restating prior years’ financial statements:
a. A change from the LIFO method of inventory pricing to another method?
b. A change in the method of accounting for long-term construction-type contracts?
c. A change to or from the full-cost method of accounting that is used in extractive industries?
d. A change from retirement-replacement-betterment accounting to depreciation accounting?
3. For those changes in accounting principles reported by restating prior years’ financial statements, are the following disclosur
20, 28)
a. The nature of and justification for a change in accounting principle?
b. The effect of the change on income before extraordinary items and net income (and on related per share amounts when pres
all periods presented?
4. For a change in accounting principle that is accounted for as a cumulative effect adjustment: (-20, pars. 19-26)
a. Have the financial statements for prior periods included for comparative purposes been presented as previously reported?
b. Has the cumulative effect of change to the new accounting principle on the amount of retained earnings at the beginning of t
in which the change is made been included in net income of the period of the change?
c. Has the amount of the cumulative effect been shown as a separate item in the income statement between the captions “extra
items” and “net income” and the related tax effects (and related per share amounts when presented) been disclosed?
d. Has the effect of adopting the new accounting principle on income before extraordinary items and on net income (and on rela
share amounts when presented) of the period of the change been disclosed?
e. Have pro forma amounts of income before extraordinary items and net income been shown on the face of the income statem
periods presented as if the newly adopted accounting principle had been applied during all periods affected?
f. If the pro forma amounts cannot be computed or reasonably estimated for individual prior periods, although the cumulative ef
retained earnings at the beginning of the period of change can be determined, has the reason for not showing the pro forma am
periods been disclosed?
g. If the amount of the cumulative effects of a change in accounting principle on retained earnings at the beginning of the period
change cannot be computed (generally limited to a change from the FIFO inventory method to LIFO), are the following disclosu
(1) The effect of the change on the results of operations (and on related per share amounts when presented) for the period of c
(2) The reason for omitting (a) accounting for the cumulative effect and (b) disclosures of pro forma amounts for prior years?
5. Are the following disclosures made for a change in the method of depreciation, depletion, or amortization for newly acquired
while a different method continues to be used for assets of that class acquired in previous years:
a. Description of the nature of the change in method?
b. The effect of the change in method on income before extraordinary items and net income (and on related per share amounts
presented) for the year in which the change in method occurred?
6. If an accounting change is not considered material for the period in which the change occurs, but it is reasonably certain that
change will have a material effect on financial statements of subsequent years, are appropriate disclosures made whenever the
statements of the year of change are presented?
ACCOUNTING CHANGES—CHANGES IN REPORTING ENTITY
1. Are prior years’ financial statements restated for a change in the reporting entity, including the following:
a. A business combination accounted for by the pooling-of-interests method?
b. Presenting consolidated or combined statements in place of statements of individual enterprises?
c. Changing specific subsidiaries comprising the group of enterprises for which consolidated financial statements are presented
d. Changing the enterprises included in combined financial statements?
2. Are the following disclosures made for a change in reporting entity for the period in which the change has occurred:
a. A description of the nature of the change?
b. A description of the reason for the change?
c. The effect of the change on income before extraordinary items and net income (and on related per share amounts when pres
all periods presented?
ACCOUNTING POLICIES AND RECLASSIFICATIONS
1. Is a summary of significant accounting policies presented and does it include important judgments about the appropriateness
principles relating to revenue recognition and asset cost allocation to current and future periods, and in particular include the fo
22, pars. 8-15)
a. Selection from existing acceptable alternative accounting principles and methods?
b. Principles and methods peculiar to the industry, even if the principle or method is predominant in the industry?
c. Unusual or innovative applications of GAAP, including principles and methods peculiar to the industry?
2. Are material changes in classifications made to previously issued financial statements disclosed?
ADVERTISING COSTS
1. Are the following disclosures made for direct-response advertising:
a. A description of the direct-response advertising reported as assets, if any?
b. The accounting policy for it?
c. The amortization period?
2. For non-direct response advertising costs, are disclosures made about whether such costs are expensed as incurred for the
the advertising takes place?
3. Is the disclosure made of the total amount charged to advertising expense for each income statement presented, with separa
disclosure of amounts, if any, representing a writedown to net realizable value?
4. Is disclosure made of the total amount of advertising costs reported as assets in each balance sheet presented
5. Is the amount of revenue and expense recognized from advertising barter transactions disclosed for each income statement
presented? (EITF 99-17) (Note: Entities providing advertising in barter transactions that do not qualify for recognition at fair valu
EITF 99-17 should disclose for each income statement presented the volume and type of advertising provided and received, su
number of equivalent pages, number of minutes, or the overall percentage of advertising volume.)
BUSINESS COMBINATIONS—POOLING OF INTERESTS
1. Are the following disclosures made when a business combination is accounted for as a pooling-of-interests:
a. Name and brief description of the enterprises combined, except for an enterprise whose name is carried forward to the comb
enterprise?
b. Statement that the business combination was accounted for using the pooling-of-interests method?
c. Description and number of shares of stock issued in the business combination?
d. Details (including revenues, extraordinary items, net income, other changes in stockholders’ equity, and amount of and mann
accounting for intercompany transactions) of the results of operations of the previously separate enterprises for the period befo
business combination is consummated that are included in the current combined net income?
e. Descriptions of the nature of adjustments of net assets of the combining enterprises to adopt the same accounting practices
effects of the changes on net income reported previously by the separate enterprises and now are presented in comparative fin
statements?
f. Details (including, at minimum, revenues, expenses, extraordinary items, net income, and other changes in stockholders’ equ
period excluded from the reported results of operations) of an increase or decrease in retained earnings from changing the fisca
combining enterprise?
g. Reconciliations of amounts of revenues and earnings previously reported by the enterprise that issues the stock to effect the
combination with the combined amounts currently presented in financial statements and historical summaries? (Alternatively, a
enterprise formed to effect a combination may instead disclose the earnings of separate enterprises that comprise combined ea
prior periods.)
h. The nature of and effects on earnings per share of nonrecurring intercompany transactions involving long-term assets and lia
were not eliminated from current period income?
2. If a transaction expected to be treated as a pooling has been initiated, and a portion of the stock has been acquired, but the
not consummated at the date of the financial statements, have combined results of operations of all prior periods and the entire
period been disclosed as they will be reported if the combination is later accounted for as a pooling?
3. Is information disclosed in notes to financial statements furnished on a pro forma basis for a proposed business combination
accounted for as a pooling-of-interests) that is given to stockholders of combining enterprises?
4. For a business combination (to be accounted for as a pooling-of-interests) consummated before the financial statements are
that is either incomplete as of the date of the financial statements or initiated after that date, are details (including revenues, ne
earnings per share, and the effects of anticipated changes in accounting methods as if the combination had been consummate
date of the financial statements) of the effects of the business combination disclosed in notes to the financial statements?
BUSINESS COMBINATIONS—PURCHASE
1. Are the following disclosures made when a business combination is accounted for as a purchase (several relatively minor ac
may be combined for disclosure purposes):
a. Name and brief description of the acquired enterprise?
b. Statement that the business combination was accounted for using the purchase method?
c. Period for which results of operations of the acquired enterprise are included in the income statement of the acquiring enterp
d. Cost of the acquired enterprise and, if applicable, the number of shares of stock issued or issuable and the amount assigned
issued and issuable shares?
e. Description of the plan for amortization of acquired goodwill, the amortization method, and periods?
f. Contingent payments, options, or commitments specified in the acquisition agreement and their proposed accounting treatme
2. For research and development assets acquired in a business combination accounted for as a purchase that have no alternat
use, has disclosure been made of the portion of the purchase price that has been allocated to research and development and c
expense at the date of consummation of the business combination?
3. Has consideration that is issued or issuable at the end of a contingency period or that is held in escrow been disclosed?
4. Are the following disclosures (optional for nonpublic clients) made on a pro forma basis for business combinations accounted
purchase:
a. Results of operations for the current period as though the enterprises had combined at the beginning of the period, unless th
acquisition was at or near the beginning of the period?
b. Results of operations for the immediately preceding period as though the enterprises had combined at the beginning of that p
comparative financial statements are presented?
c. At a minimum, pro forma disclosures including revenues, income before extraordinary items, net income, and earnings per sh
5. If preacquisition contingencies (for business combinations accounted for as a purchase) are not allocated as required, are th
and nature of adjustments determined after December 15, 1980, disclosed?
6. Are the following disclosures made if a combined entity plans to incur costs from exiting an activity of an acquired entity, invo
terminating employees of an acquired entity, or relocating employees of an acquired entity and the activities of the acquired ent
not be continued are significant to the combined entity’s revenues or operating results or the cost recognized from those activiti
the consummation date are material to the combined entity?
a. For the period in which a purchase business combination occurs:
(1) When the plans to exit an activity or involuntarily terminate or relocate employees of the acquired entity are not final as of th
sheet date, a description of any unresolved issues, the types of additional liabilities that may result in an adjustment to the purc
allocation, and how any adjustment will be reported?
(2) A description of the type and amount of liabilities assumed in the purchase price allocation for costs to exit an activity or invo
terminate or relocate employees?
(3) A description of the major actions that make up the plan to exit an activity or involuntarily terminate or relocate employees o
acquired entity?
(4) A description of activities of the acquired entity that will not be continued, including the method of disposition, and the anticip
of completion and description of employee groups to be terminated or relocated?
b. For all periods presented subsequent to the acquisition date in which a purchase business combination occurred, until a plan
activity or involuntarily terminate or relocate employees of an acquired entity is fully executed:
(1) A description of the type and amount of exit costs, involuntary employee termination costs, and relocation costs paid and ch
against the liability?
(2) The amount of any adjustments to the liability account and whether the corresponding entry was an adjustment of the costs
acquired entity or included in the determination of net income for the period?
CHANGING PRICES
Note: Entities are encouraged, but not required, to disclose information on changing prices
1. Have the following disclosures been made, for each of the five most recent years:
a. Net sales and other operating revenues?
b. Income from continuing operations on a current cost basis?
c. Purchasing power gain or loss on net monetary items?
d. Increase or decrease in the current cost or lower recoverable amount of inventory and property, plant, and equipment, net of
e. The aggregate foreign currency translation adjustment on a current cost basis, if applicable?
f. Net assets at year-end on a current cost basis?
g. Income per common share from continuing operations on a current cost basis?
h. Cash dividends declared per common share?
i. Market price per common share at year-end?
j. The Consumer Price Index—All urban Consumers (CPI-U) used for each year’s current cost/constant purchasing power calcu
k. If the Company has a significant foreign operation measured in a functional currency other than the U.S. dollar, has disclosur
made of whether adjustments to the current cost information to reflect the effects of general inflation are based on the U.S. gen
level index or on a functional currency general price level index?
2. In addition to the disclosures in item 1 above, if income from continuing operations on a current cost/constant purchasing pow
differs significantly from the income from continuing operations reported in the primary financial statements, have the following
information been disclosed: ( -89, pars. 11-13)
a. Components of income from continuing operations for the current year on a current cost/constant purchasing power basis?
b. Separate amounts for the current cost or lower recoverable amount at the end of the current year of inventory and property, p
equipment?
c. The increase or decrease in current cost or lower recoverable amount before and after adjusting for the effects of inflation of
and property, plant, and equipment for the current year?
d. The principal types of information used to calculate the current cost of (1) inventory, (2) property, plant, and equipment, (3) c
goods sold, and (4) depreciation, depletion, and amortization expense?
e. Any differences between (1) the depreciation methods, estimates of useful lives, and salvage values of assets used for calcu
current cost/constant purchasing power depreciation and (2) the methods and estimates used for calculations of depreciation in
primary financial statements?
3. For companies with mineral resource assets (other than oil and gas), such as metal ores, coal, etc., have the following additi
disclosures been made: ( -89, 14)
a. Estimates of significant quantities of proved mineral reserves or proved and probable mineral reserves (whichever is used fo
amortization purposes) at the end of the year or at the most recent date during the year for which estimates can be made?
b. If the mineral reserves include deposits containing one or more significant mineral products, the estimated quantity, expresse
physical units or in percentages of reserves, of each mineral product that is recoverable in significant commercial quantities?
c. Quantities of each significant mineral produced during the year?
d. Quantity of significant proved, or proved and probable, mineral reserves purchased or sold in place during the year?
e. The average market price of each significant mineral product or, for mineral products transferred within the enterprise, the eq
market price prior to use in a manufacturing process?
4. When determining the quantities of mineral reserves to be reported in item 3 above, have the following been applied:
a. If consolidated financial statements are issued, 100 percent of the quantities attributable to the parent company and 100 perc
quantities attributable to its consolidated subsidiaries (whether or not wholly owned) should be included.
b. If the company’s financial statements include investments that are proportionately consolidated, the company’s quantities sh
include its proportionate share of the investee’s quantities.
c. If the company’s financial statements include investments that are accounted for by the equity method, the investee’s quantit
not be included in the disclosures of the company’s quantities. However, the company’s share of the investee’s quantities of res
should be reported separately, if significant.
COMMITMENTS
1. Have disclosures included a description of the commitment, the terms of the commitment, and the amount of the commitmen
or unusual commitments such as the following:
a. Unused letters of credit?
b. Obligation to reduce debt?
c. Obligation to maintain working capital?
d. Obligation to restrict dividends?
e. Commitments for major capital expenditures?
f. Assets pledged as security for loans?
g. Net losses on inventory purchase commitments?
h. Other commitments?
COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED
1. Have research and development costs incurred for computer software to be sold, leased, or otherwise marketed been disclo
separately or as part of total research and development costs for each period presented?
2. If an entity has capitalized costs incurred for computer software costs to be sold, leased, or otherwise marketed, have the fol
disclosures been made: ( -86, 11)
a. Unamortized computer software costs included in each balance sheet presented?
b. The total amount charged to expense in each income statement presented for amortization of capitalized computer software
for amounts written down to net realizable value?
CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
1. Is the consolidation policy followed by the client apparent by the headings on the financial statements, other information in th
statements, or disclosed in notes?
2. Are intercompany accounts and intercompany profits or losses on assets eliminated as part of the preparation of consolidate
statements?
3. If the consolidated financial statements are prepared using the financial statements of a subsidiary that has a different year e
the parent, are disclosures made for intervening events that materially affect financial position or results of operations?
4. If the entity is a member of a group that files a consolidated tax return, are the following disclosures made in its separately is
financial statements:
a. The amount of current and deferred tax expense for each statement of income presented?
b. The amount of any tax-related balances due to or from affiliates as of the date of each balance sheet presented?
c. The principal provisions of the method by which the consolidated amount of current and deferred tax expense is allocated to
of the group, and the nature and effect of any changes in that method (and in determining related balance to or from affiliates) d
years for which the disclosures in a. and b. above are presented?
5. Is summarized information about assets, liabilities, and results of operations relating to majority-owned subsidiaries that were
unconsolidated in financial statements for fiscal years 1986 or 1987, but which are now consolidated based on -94, disclosed?
CONTINGENCIES, RISKS, UNCERTAINTIES, AND CONCENTRATIONS
Loss and Gain Contingencies
1. If loss contingencies have been accrued, has consideration been given to describing the nature and amount of the accrual fo
financial statements not to be misleading?
2. If no accrual is made for a loss contingency, or if an exposure to loss exists in excess of the amount accrued, have the follow
disclosures been made when there is at least a reasonable possibility that a loss or an additional loss may have been incurred:
a. The nature of the contingency?

b. An estimate of the possible loss or range of loss, or a statement that such an estimate cannot be made?
3. Are the following disclosures made (when it is necessary to keep the financial statements from being misleading) for losses a
contingencies that arise subsequent to the date of the financial statements:
a. The nature of the loss or loss contingency?
b. An estimate of the amount or range of loss, or possible loss, or a statement that an estimate cannot be made?
4. Are the following disclosures made for certain remote loss contingencies relating to guarantees made for outside parties (suc
guarantees of indebtedness of others, obligations of commercial banks under stand-by letters of credit, and guarantees to repu
receivables or other properties that have been sold or assigned):
a. The nature of the loss contingency?
b. The nature and amount of the guarantee?
c. If subject to estimation, the value of any recovery from other outside parties that could be expected to result?
5. Are loss contingencies relating to guarantees (direct, indirect, written, or oral) made for outside parties disclosed, including th
and amounts thereof, and the value of any recovery that could be expected to result, if estimable?
6. Are there adequate disclosures for unasserted claims or assessments if it is considered probable that a claim will be asserte
is a reasonable possibility that a loss will arise from the matter?
7. Have contingencies that might result in gains been adequately disclosed but not reflected in the financial statements since to
might be to recognize revenue before to its realization? (Care should be exercised to avoid misleading implications about the lik
realization.)
Environmental Remediation Contingencies
1. Has the following information been disclosed about recorded accruals for environmental remediation loss contingencies and
assets for third-party recoveries
a. Whether the accrual for environmental remediation liabilities is measured on a discounted basis?
b. The nature and amount of the accrual if necessary for the financial statements not to be misleading?
c. If any portion of the accrued obligation is discounted, the undiscounted amount of the obligation and the discount rate used?
d. If it is at least reasonably possible that the accrued obligation or any recognized asset for third-party recoveries will change w
year of the date of the financial statements and the effect is material, an indication that it is at least reasonably possible that a c
the estimate will occur in the near term?
2. Have the following disclosures been made about unaccrued environmental remediation contingencies, including exposures i
amounts accrued:
a. A description of the reasonably possible loss contingency and an estimate of the possible loss, or the fact that such an estim
be made?
b. If it is at least reasonably possible that the estimated loss (or gain) contingency will change within one year of the date of the
statements and the effect is material, an indication that it is at least reasonably possible that a change in the estimate will occur
near term?
3. Have the following optional disclosures been made by entities that elect to disclose such items: (NOTE: Entities are encoura
not required, to disclose this information)
a. The estimated time frame of disbursements for recorded amounts if expenditures are expected to continue over the long term
b. The estimated time frame for realization of recognized probable recoveries, if realization is not expected in the near term?
c. The factors that cause the estimates to be sensitive to change with respect to (1) the accrued obligation, (2) any recognized
third-party recoveries, or (3) reasonably possible loss exposures, or disclosed gain contingencies?
d. If an estimate of the probable or reasonable possible loss or range of loss cannot be made, the reasons why it cannot be ma
e. If information about the reasonably possible loss or the recognized and additional reasonably possible loss for an environme
remediation obligation related to an individual site is relevant to an understanding of the financial position, cash flows, or results
operations of the entity, are the following disclosures made with respect to the site:
(1) The total amount accrued for the site?
(2) The nature of any reasonably possible loss contingency or additional loss, and an estimate of the possible loss or the fact th
estimate cannot be made and the reasons why it cannot be made?
(3) Whether other potentially responsible parties are involved and the entity’s estimated share of the obligation?
(4) The status of regulatory proceedings?
(5) The estimated time frame for resolution of the contingency?
4. If an environmental liability for a specific clean-up site is discounted because it meets the criteria for discounting in EITF 93-5
effect of discounting is material, do the financial statements disclose the undiscounted amounts of the liability and any related r
and the discount rate used? (EITF 93-5)
Risks, Uncertainties, and Concentrations
1. Are the following disclosures made about the entity’s nature of operations, including: ( 94-6, 10)
a. A description of the entity’s major products or services?
b. The principal markets (e.g., industries and types of customers) for the entity’s products or services?
c. If the entity operates in more than one business, the relative importance of the entity’s operations in each business and the b
that determination (e.g., based on assets, revenues, or earnings)? (Note: Relative importance need not be quantified and could
conveyed by use of terms such as predominately, about equally, or major.)
2. Is disclosure made that the preparation of financial statements in conformity with GAAP requires the use of management’s e
94-6, 11)
3. Are the following disclosures made regarding significant estimates used in the determination of the carrying amounts of asse
liabilities or in disclosure of gain or loss contingencies, if (1) it is at least reasonably possible that the effect on the financial state
the estimates will change within one year of the date of the financial statements due to one or more future confirming events, an
effect of the change would be material to the financial statements: ( 94-6, pars. 13-15)
a. The nature of the estimate?
b. An indication that it is at least reasonably possible that a change in the estimate will occur in the near term?
c. The factors that cause the estimate to be sensitive to change? (This disclosure is encouraged, but not required.)
d. If the entity uses risk-reduction techniques to mitigate losses or the uncertainty that may result from future events and, as a r
determines that the criteria described above are not met, the disclosures in a, b, and c are encouraged, but not required?
4. Are the following concentrations disclosed if (1) the concentration exists at the date of the financial statements, (2) the conce
makes the entity vulnerable to the risk of a near-term severe impact, and (3) it is at least reasonably possible that the events th
cause the severe impact will occur in the near term: ( 94-6, pars. 21, 22, and 24)
a. Concentrations in the volume of business transacted with a particular customer, supplier, lender, grantor, or contributor? (Fo
of this disclosure, it is always considered at least reasonably possible that any customer, grantor, or contributor will be lost in th
term.)
b. Concentrations in revenue from particular products, services, or fund-raising events?
c. Concentrations in the available sources of supply of materials, labor, or services, or of licenses or other rights used in the ent
operations?
d. Concentrations in the market or geographic area in which the entity conducts its operations? (For purposes of this disclosure
always considered at least reasonably possible that operations located outside an entity’s home country will be disrupted in the
term.)
e. For concentrations of labor subject to collective bargaining agreements, the percentage of the labor force covered by a collec
bargaining agreement and the percentage of the labor force covered by a collective agreement that will expire within one year?
f. For concentrations of operations located outside the entity’s home country, the carrying amounts of net assets and the geogra
areas in which they are located?
DEVELOPMENT STAGE ENTERPRISES
1. Are the following included in the financial statements issued by a development stage enterprise:
a. A balance sheet, including any cumulative net losses reported with a descriptive caption, such as “deficit accumulated during
development stage,” in the stockholders’ equity section?
b. An income statement showing amounts of revenues and expenses for each period covered by the income statement and, in
cumulative amounts from the enterprise’s inception?
c. A statement of cash flows showing the cash inflows and cash outflows for each period for which an income statement is pres
in addition, cumulative amounts from the enterprise’s inception?
d. A statement of stockholders’ equity showing from the enterprise’s inception:
(1) For each issuance, the date and number of shares of stock, warrants, rights, or other equity securities issued for cash and f
consideration?
(2) For each issuance, the dollar amounts (per share or other equity unit and in total) assigned to the consideration received for
stock, warrants, rights, or other equity securities? (Dollar amounts should be assigned to any noncash consideration received.)
(3) For each issuance involving noncash consideration, the nature of the noncash consideration and the basis for assigning am
2. Are the financial statements identified as those of a development-stage enterprise?
3. Is there a description of the nature of the development-stage activities in which the enterprise is engaged?
4. If this is the first year which the client is not considered to be a development-stage enterprise, is there a disclosure that in pri
the client had been in the development stage?
5. If the client is no longer a development-stage enterprise and financial statements from the years of the development stage ar
presented on a comparative basis, are the cumulative amounts and other additional disclosures related to a development-stage
enterprise as described in items 1 through 4 above omitted from presentation?
EMPLOYEE STOCK OWNERSHIP PLANS (ES)
1. Do the financial statements of an employer sponsoring an E disclose the following information about the plan
a. A description of the plan?
b. The basis for determining contributions?
c. The employee groups covered?
d. The nature and effects of significant matters affecting comparability of information for all periods presented?
e. For leveraged Es and pension reversion Es, the basis for releasing shares and how dividends on allocated and unallocated s
used?
2. Are the following accounting policies for blocks of both “old E shares” and “new E shares” disclosed (the following disclosure
required if the employer has both old E shares for which it does not adopt the guidance in 93-6 and new E shares for which the
in 93-6 is required; old E shares are those acquired or held by the plan on or before December 31, 1992):
a. The method of measuring compensation?
b. The classification of dividends on E shares?
c. The treatment of E shares for earnings per share computations?
3. Is disclosure made of the amount of plan compensation cost recognized during the period?
4. Are the following disclosures made at the balance sheet date for both old E shares and new E shares, if the employer does n
93-6 for the old shares: ( 93-6, 53d)
a. The number of allocated shares?
b. The number of committed-to-be-released shares?
c. The number of suspense shares held by the E?

5. Is disclosure made of the fair value of unearned E shares at the balance sheet date for shares accounted for under 93-6? (T
disclosure need not be made for old E shares for which the employer does not apply the guidance in 93-6 for those shares.) ( 9
6. Is disclosure made of the existence and nature of any repurchase obligation, including disclosure of the fair value of the shar
allocated as of the balance sheet date, which are subject to a repurchase obligation?
7. If an employer has, in substance, guaranteed the debt of an E, have the employer’s financial statements disclosed the follow
10)
a. The compensation element and the interest element of annual contributions to the E?
b. The interest rate and debt terms?
EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS TO EXIT AN ACTIVITY (INCLUDING CERTAIN RESTRUCTUR
COSTS)
1. Are the following disclosures made about accrued employee termination benefits:
a. The amount of the termination benefits accrued and charged to expense and the classification of these costs in the income s
b. The number of employees to be terminated?
c. A description of the employee group(s) to be terminated?
d. The amount of actual termination benefits paid and charged against the liability accrued for employee termination benefits?
e. The number of employees actually terminated as a result of the termination plan?
f. The amount of any adjustments to the liability accrued for employee termination benefits?
2. Are the following disclosures about an entity’s plan to exit an activity made in the financial statements for all periods until the
fully executed if the activities that will not be continued are significant to an entity’s revenue or operating results or the exit costs
recognized at the commitment date are material: (EITF 94-3)
a. A description of the major actions included in the exit plan and the particular activities that will not be continued, including the
disposition and anticipated date of completion?
b. A description of the type and amount of exit costs recognized as liabilities and the classification of the exit costs in the incom
statement?
c. A description of the type and amount of exit costs paid and charged against the liability?
d. The amount of any adjustments to the liability?
e. The revenues and net operating income or losses from activities that will not be continued if those activities have separately
operations, for all periods presented?
EXTINGUISHMENTS OF LIABILITIES
1. If debt was considered to be extinguished by in-substance defeasance under the provisions of -76, prior to January 1, 1997,
a. A general description of the transaction?
b. The amount of debt that is considered extinguished at the end of the period so long as that debt remains outstanding?
2. If assets are set aside after January 1, 1997 solely for satisfying scheduled payments of a specific obligation, has a descriptio
nature of restrictions placed on those assets been disclosed?
3. Have gains or losses from extinguishment of debt that are classified as extraordinary items been described in sufficient detai
users of financial statements to evaluate their significance? ( -4, 9)
4. Has the following information, to the extent not shown separately on the face of the income statement, been disclosed in a si
to the financial statements to evaluate its significance:
a. A description of the extinguishment transactions, including the sources of any funds used to extinguish debt if it is practicable
the sources?
b. The income tax effect in the period of extinguishment?
c. If applicable, the per share amount of the aggregate gain or loss, net of related income tax effect?
FINANCIAL INSTRUMENTS—DERIVATIVES AND HEDGING INSTRUMENTS
Questions 1 through 4 apply if -133 (Accounting for Derivative Instruments and Hedging Activities), as amended by -138, has
adopted. (Note: -133 and -138 are effective for all fiscal quarters of fiscal years beginning after June 15, 2000)
1. Have the following disclosures been made, either in the body of the financial statements or in the accompanying notes, abou
financial instruments held or issued for trading purposes:
a. The average fair value of those derivative financial instruments during the reporting period, presented together with the relate
value at the balance-sheet date, distinguishing between those that are assets and those that are liabilities?
b. The net gains or losses arising from trading activities (often referred to as net trading revenues) during the reporting period
disaggregated by class, business activity, risk, or other category that is consistent with the management of those activities and
those net trading gains or losses are reported in the income statement? (If the disaggregation is other than by class, the entity a
describe for each category the classes of derivative financial instruments, other financial instruments, and nonfinancial assets a
liabilities from which the net trading gains or losses arose.)
2. Have the following disclosures been made about derivative financial instruments held or issued for purposes other than tradi
11)
a. The entity’s objectives for holding or issuing the instruments?
b. The context needed to understand the entity’s objectives?
c. The entity’s strategies for achieving those objectives, including the classes of derivative financial instruments used?
d. A description of how each class of derivative financial instrument is reported in the financial statements, including the policies
recognizing (or reasons for not recognizing) and measuring the derivative financial instruments held or issued, and when recog
where those instruments and related gains and losses are reported in the balance sheet and income statement?
e. For derivative financial instruments that are held or issued and accounted for as hedges of anticipated transactions (both firm
commitments and forecasted transactions for which there is no firm commitment), have the following disclosures been made:
(1) A description of the anticipated transactions whose risks are hedged, including the period of time until the anticipated transa
expected to occur?
(2) A description of the classes of derivative financial instruments used to hedge the anticipated transactions?
(3) The amount of hedging gains and losses explicitly deferred?
(4) A description of the transactions or other events that result in the recognition in earnings of gains or losses deferred by hedg
accounting?
3. In disclosing the fair value of a derivative financial instrument, did the entity not (1) combine, aggregate, or net that fair value
fair value of nonderivative financial instruments or (2) net that fair value with the fair value of other derivative financial instrumen
to the extent that the offsetting of carrying amounts in the balance sheet is permitted?
4. Have the following disclosures been made for futures contracts that have been accounted for as hedges:
a. The nature of the assets, liabilities, firm commitments, or anticipated transactions that are hedged with futures contracts?
b. The method of accounting for the futures contracts?
c. The description of the events or transactions that result in recognition in income of changes in value of the futures contracts?
5. Have the following disclosures been made for all derivative instruments (and for nonderivative instruments designated and q
hedging instruments): ( -133, 44)
a. The entity’s objectives for holding or issuing the instruments?
b. The context needed to understand the entity’s objectives?
c. The entity’s strategies for achieving these objectives?
d. The entity’s risk management policy for each type of hedge, including a description of the items or transactions for which risk
hedged?
e. For derivative instruments not designated as hedging instruments, the purpose of the derivative activity?
f. Do the disclosures for items 5a. through 5e. above distinguish between:
(1) Derivative instruments (and nonderivative instruments) designated as fair value hedging instruments?
(2) Derivative instruments designated as cash flow hedging instruments?
(3) Derivative instruments (and nonderivative instruments) designated as hedging instruments for hedges of the foreign currenc
exposure of a net investment in a foreign operation?
(4) All other derivatives?

6. Have the following disclosures been made for derivative instruments designated and qualifying as fair value hedging instrum
well as nonderivative instruments that may give rise to foreign currency transaction gains or losses) and for the related hedged
each reporting period for which a complete set of financial statements is presented: ( -133, 45)
a. The net gain or loss recognized in earnings during the reporting period representing (a) the amount of the hedges’ ineffective
(b) the component of the derivative instruments’ gain or loss, if any, excluded from the assessment of hedge effectiveness, and
description of where the net gain or loss is reported in the statement of income or other statement of financial performance?
b. The amount of net gain or loss recognized in earnings when a hedged firm commitment no longer qualifies as a fair value he
7. Have the following disclosures been made for derivative instruments that have been designated and qualifying as cash flow h
instruments and for the related hedged transactions: ( -133, 45)
a. The net gain or loss recognized in earnings during the reporting period representing (a) the amount of the hedges’ ineffective
the component of the derivative instruments’ gain or loss, if any, excluded from the assessment of hedge effectiveness, and (c)
b. A description of the transactions or other events that will result in the reclassification into earnings of gains and losses that ar
in accumulated other comprehensive income, and the estimated net amount of the existing gains or losses at the reporting date
expected to be reclassified into earnings within the next 12 months?
c. The maximum length of time over which the entity is hedging its exposure to the variability in future cash flows for forecasted
transactions excluding those forecasted transactions related to the payment of variable interest on existing financial instruments
d. The amount of gains and losses reclassified into earnings as a result of the discontinuance of cash flow hedges because it is
that the original forecasted transactions will not occur?
8. Has the following disclosure been made for derivative instruments designated and qualifying as hedging instruments for hedg
foreign currency exposure of a net investment in a foreign operation (as well as for nonderivative instruments that may give rise
currency transaction gains or losses):
a. The net amount of gains or losses included in the cumulative translation adjustment during the reporting period?
9. Have the following disclosures been made as part of reporting changes in the components of other comprehensive income:
a. The net gain or loss on derivative instruments designated and qualifying as cash flow hedging instruments that are reported
comprehensive income displayed as a separate classification within other comprehensive income?
b. As part of the disclosures of accumulated other comprehensive income, are the following disclosed separately:
(1) The beginning and ending accumulated derivative gain or loss?
(2) The related net change associated with current-period hedging transactions?
(3) The net amount of any reclassification into earnings?
FINANCIAL INSTRUMENTS—OTHER DISCLOSURES

1. For financial instruments with off-balance-sheet risk, have the following disclosures been made by category of financial instru
a. The face or contract amount (or notional principal amount if there is no face or contract amount)?
b. The nature and terms of the financial instruments, including at a minimum a discussion of (1) the credit and market risk of tho
instruments, (2) the cash requirements of those instruments, and (3) the related accounting policy?
c. Have the disclosures required in 1a. and 1b. above:
(1) Distinguished between financial instruments held or issued for trading purposes (including dealing and other trading activitie
measured at fair value with gains and losses recognized in earnings) and financial instruments held or issued for purposes othe
trading?
(2) Included a description of the leverage features and their general effect on the credit and market risk, cash requirements, and
accounting policy?
(3) Been made for options and other derivatives that do not have off-balance-sheet risk?
(4) Been made by category of financial instrument (for example, class of financial instrument, business activity, or risk), distingu
between those held for trading purposes and those held for purposes other than trading?
2. For financial instruments with off-balance-sheet credit risk, have the following disclosures been made
a. The amount of accounting loss the entity would incur if any party to the financial instrument failed completely to perform acco
the terms of the contract and the collateral or other security, if any, for the amount due proved to be of no value to the entity?
b. The entity’s policy of requiring collateral or other security to support financial instruments subject to credit risk?
c. Information about the entity’s access to that collateral or other security?
d. The nature and a brief description of the collateral or other security supporting those financial instruments?
3. Have significant concentrations of credit risk arising from all financial instruments been disclosed, including the following abo
significant concentration:
a. Information about the activity, region, or economic characteristic that identifies the concentration?
b. The amount of accounting loss caused by credit risk the entity would incur if parties to the financial instruments that make up
concentration failed completely to perform according to the terms of the contract and the collateral or other security, if any, for t
due proved to be of no value to the entity?
c. The entity’s policy of requiring collateral or other security to support financial instruments subject to credit risk?
d. Information about the entity’s access to the collateral or other security?
e. The nature and a brief description of the collateral or other security supporting those financial instruments?
4. Have the following information about fair value of financial instruments been disclosed either in the body of the financial state
in the accompanying notes: (Note: these disclosures about the fair value of financial instruments are optional, not required, for a
that meets all of the following criteria: (1) the entity is a nonpublic entity, (2) the entity’s total assets are less than $100 million o
of the financial statements, and (3) the entity has not held or issued any derivative financial instruments during the reporting pe
-107, pars. 10 and 14; -119, 15)
a. Fair value of financial instruments for which it is practicable to estimate fair value? (For trade receivables and payables, no d
required when the carrying amount approximates fair value). In connection with this item:
(1) When disclosure is made in the accompanying notes, is the fair value presented together with the related carrying amount in
that makes it clear whether the fair value and carrying amount represent assets or liabilities and how the carrying amounts relat
is reported in the balance sheet?
(2) Has disclosure been made in a single note or, if disclosed in more than a single note, does one of the notes include a summ
that contains the fair value and related carrying amounts and cross-references to the locations of the remaining disclosures?
b. The methods and significant assumptions used to estimate the fair value of financial instruments? (The disclosures should di
between financial instruments held or issued for trading purposes, including dealing and other trading activities measured at fai
with gains and losses recognized in earnings, and financial instruments held or issued for purposes other than trading.)
c. In disclosing the fair value of a derivative financial instrument, did the entity not (1) combine, aggregate, or net that fair value
fair value of nonderivative financial instruments or (2) net that fair value with the fair value of other derivative financial instrumen
to the extent that the offsetting of carrying amounts in the balance sheet is permitted?
d. For financial instruments for which it is concluded that estimating fair value is not practicable, have disclosures been made o
information related to estimating the fair value of the financial instrument (such as the carrying amount, effective interest rate, a
maturity), and (2) the reasons why it is not practicable to estimate fair value?
5. Have the required disclosures been made for transfers of financial instruments? (See “Transfers and Servicing of Financial A
6. Have significant concentrations of credit risk arising from all financial instruments been disclosed, including the following abo
significant concentration:
a. Information about the activity, region, or economic characteristic that identifies the concentration?
b. The maximum amount of loss due to credit risk that, based on the gross fair value of the financial instrument, the entity would
parties to the financial instruments that make up the concentration failed completely to perform according to the terms of the co
and the collateral or other security, if any, for the amount due proved to be of no value to the entity?
c. The entity’s policy of requiring collateral or other security to support financial instruments subject to credit risk?
d. Information about the entity’s access to the collateral or other security?
e. The nature and a brief description of the collateral or other security supporting those financial instruments?
f. The entity’s policy of entering into master netting arrangements to mitigate the credit risk of financial instruments, information
arrangements for which the entity is a party, and a brief description of the terms of those arrangements, including the extent to
would reduce the entity’s maximum amount of loss due to credit risk?
7. Have the following information about fair value of financial instruments been disclosed either in the body of the financial state
in the accompanying notes: (Note: these disclosures about the fair value of financial instruments are optional, not required, for a
that meets all of the following criteria: (1) the entity is a nonpublic entity, (2) the entity’s total assets are less than $100 million o
of the financial statements, and (3) the entity has not held or issued any derivative financial instruments during the reporting pe
a. Fair value of financial instruments for which it is practicable to estimate fair value? (For trade receivables and payables, no d
required when the carrying amount approximates fair value). In connection with this item:
(1) When disclosure is made in the accompanying notes, is the fair value presented together with the related carrying amount in
that makes it clear whether the fair value and carrying amount represent assets or liabilities and how the carrying amounts relat
is reported in the balance sheet?
(2) Has disclosure been made in a single note or, if disclosed in more than a single note, does one of the notes include a summ
that contains the fair value and related carrying amounts and cross-references to the locations of the remaining disclosures?
b. The methods and significant assumptions used to estimate the fair value of financial instruments?
c. In disclosing the fair value of a financial instrument, did the entity not net that fair value with the fair value of other financial in
except to the extent that the offsetting of carrying amounts in the balance sheet is permitted?
d. For financial instruments for which it is concluded that estimating fair value is not practicable, have disclosures been made o
information related to estimating the fair value of the financial instrument (such as the carrying amount, effective interest rate, a
maturity), and (2) the reasons why it is not practicable to estimate fair value?
8. Have the required disclosures been made for transfers of financial instruments? (See “Transfers and Servicing of Financial A
FOREIGN OPERATIONS AND CURRENCY TRANSLATION
1. Are significant foreign operations disclosed, including foreign earnings reported in excess of amounts received in the United
2. Is the aggregate exchange transaction gain or loss, included in the determination of net income, disclosed on the income sta
in a related note? ( -52, 30)
3. Is there an analysis of the change in the cumulative translation adjustments (included as a component of accumulated other
comprehensive income), and does the analysis include the following:
a. Beginning and ending amounts of cumulative translation adjustments?
b. The aggregate adjustment for the period resulting from translation adjustments and gains and losses from hedges of a net in
in a foreign entity and long-term intercompany balances?
c. The amount of income taxes for the period allocated to translation adjustments?
d. The amounts transferred from cumulative translation adjustments and included in determining net income for the period as a
the sale or complete (or substantially complete) liquidation of an investment in a foreign entity?
4. Are the following disclosures made for rate changes that occur after the date of the client’s financial statements:
a. Disclosure for the rate change?
b. The effects of rate changes on unsettled balances pertaining to foreign currency transactions?
c. If the effects of rate changes cannot be determined, is that fact disclosed?
5. Are additional optional disclosures, such as the following, considered to supplement the required disclosures described abov
144)
a. Mathematical effects of translating revenue and expenses at rates that are different from those used in previous financial sta
b. Economic effects (such as selling prices, sales volume, and cost structures) of rate changes?
6. Are significant foreign operations disclosed, including foreign earnings reported in excess of amounts received in the United
7. Is the aggregate exchange transaction gain or loss disclosed as follows:
a. For derivative instruments designated and qualifying as fair value hedging instruments, as well as nonderivative instruments
give rise to foreign currency transaction gains or losses, and for the related hedged items, for each reporting period for which a
set of financial statements is presented:
(1) The net gain or loss recognized in earnings during the reporting period representing (a) the amount of the hedges’ ineffectiv
(b) the component of the derivative instruments’ gain or loss, if any, excluded from the assessment of hedge effectiveness, and
(2) The amount of net gain or loss recognized in earnings when a hedged firm commitment no longer qualifies as a fair value he
b. For derivative instruments that have been designated and qualifying as cash flow hedging instruments and for the related he
transactions:
(1) The net gain or loss recognized in earnings during the reporting period representing (a) the amount of the hedges’ ineffectiv
the component of the derivative instruments’ gain or loss, if any, excluded from the assessment of hedge effectiveness, and (c)
(2) A description of the transactions or other events that will result in the reclassification into earnings of gains and losses that a
reported in accumulated other comprehensive income, and the estimated net amount of the existing gains or losses at the repo
that is expected to be reclassified into earnings within the next 12 months?
(3) The maximum length of time over which the entity is hedging its exposure to the variability in future cash flows for forecasted
transactions excluding those forecasted transactions related to the payment of variable interest on existing financial instruments
(4) The amount of gains and losses reclassified into earnings as a result of the discontinuance of cash flow hedges because it i
that the original forecasted transactions will not occur?
c. For derivative instruments designated and qualifying as hedging instruments for hedges of the foreign currency exposure of a
investment in a foreign operation (as well as for nonderivative instruments that may give rise to foreign currency transaction gai
losses):
(1) The net amount of gains or losses included in the cumulative translation adjustment during the reporting period?
8. Is there an analysis of the change in the cumulative translation adjustments (included as a component of accumulated other
comprehensive income), and does the analysis include the following:
a. Beginning and ending amounts of cumulative translation adjustments?
b. The aggregate adjustment for the period resulting from translation adjustments and gains and losses from hedges of a net in
in a foreign entity and long-term intercompany balances?
c. The amount of income taxes for the period allocated to translation adjustments?
d. The amounts transferred from cumulative translation adjustments and included in determining net income for the period as a
the sale or complete (or substantially complete) liquidation of an investment in a foreign entity?
9. Are the following disclosures made for rate changes that occur after the date of the client’s financial statements:
a. Disclosure for the rate change?
b. The effects of rate changes on unsettled balances pertaining to foreign currency transactions?
c. If the effects of rate changes cannot be determined, is that fact disclosed?
10. Are additional optional disclosures, such as the following, considered to supplement the required disclosures described abo
144)
a. Mathematical effects of translating revenue and expenses at rates that are different from those used in previous financial sta
b. Economic effects (such as selling prices, sales volume, and cost structures) of rate changes?
GOING-CONCERN DISCLOSURES
1. If the auditor concludes, after considering management’s plans, that there is substantial doubt about the entity’s ability to con
going concern for a period of time not to exceed one year beyond the balance sheet date, do the financial statements include th
following disclosures:
a. Pertinent conditions and events giving rise to the assessment of substantial doubt about the entity’s ability to continue as a g
concern for a period of time not to exceed one year beyond the balance-sheet date?
b. The possible effects of such conditions and events?
c. Management’s evaluation of the significance of those conditions and events and any mitigating factors?
d. Possible discontinuance of operations?
e. Management’s plans, including relevant prospective financial information?

f. Information about the recoverability or classification of recorded asset amounts or the amounts or classification of liabilities?
2. When, primarily because of the auditor’s consideration of management’s plans, the auditor concludes that substantial doubt
entity’s ability to continue as a going concern for a period of time not to exceed one year from the balance sheet date is alleviat
financial statements include the following disclosures:
a. The principal conditions and events that initially caused the auditor to believe there was substantial doubt?
b. The possible effects of such conditions and events, and any mitigating factors, including management’s plans?
IMPAIRMENT OF CERTAIN LOANS
loans as defined in
a. As of the date of each statement of financial position presented, the total recorded investment in the impaired loans at the en
period and (1) the amount of that recorded investment for which there is a related allowance for credit losses and the amount o
allowance and (2) the amount of that recorded investment for which there is no related allowance for credit losses?
b. The creditor’s policy for recognizing interest income on impaired loans, including how cash receipts are recorded?
c. For each period for which results of operations are presented:
(1) The average recorded investment in the impaired loans during each period?
(2) The related amount of interest income recognized during the time within that period that the loans were impaired?
(3) The amount of interest income recognized using a cash-basis method of accounting during the time within that period that th
were impaired, unless not practicable?
d. For each period for which results of operations are presented, have disclosures been made of the activity in the total allowan
credit losses related to loans, including the following:
(1) The balance in the allowance at the beginning and end of each period?
(2) Additions charged to operations?
(3) Direct writedowns charged against the allowance?
(4) Recoveries of amounts previously charged off?
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
1. Have the following disclosures been made for impaired assets to be held and used:
a. A description of the impaired assets and the facts and circumstances leading to the impairment?
b. The amount of the impairment loss and how fair value was determined?
c. The caption in the income statement in which the impairment loss is aggregated if that loss has not been presented as a sep
caption or reported parenthetically on the face of the statement?
d. If applicable, the business segment(s) affected?
2. Have the following disclosures been made for all assets to be disposed of for each period presented during which those asse
held: ( -121, 19):
a. A description of the assets to be disposed of, the facts and circumstances leading to the expected disposal, the expected dis
date, and the carrying amount of those assets?
b. If applicable, the business segment(s) in which assets to be disposed of are held?
c. The loss, if any, resulting from writing down the assets to fair value less cost to sell?
d. The gain or loss, if any, resulting from changes in the carrying amounts of assets to be disposed of that arises from subsequ
revisions in estimates of fair value less cost to sell?
e. The caption in the income statement in which the gains or losses in c. and d. are aggregated if those gains or losses have no
presented as a separate caption or reported parenthetically on the face of the statement?
f. The results of operations for assets to be disposed of to the extent that those results are included in the entity’s results of ope
the period and can be identified?
INTEREST COST
1. Have the following disclosures been made with respect to interest costs:
a. For an accounting period in which no interest cost is capitalized, the amount of interest cost incurred and charged to expense
the period?
b. For an accounting period in which some interest cost is capitalized, the total amount of interest cost incurred during the perio
amount thereof that has been capitalized?
c. The amount of interest costs incurred in connection with product financing arrangements?
d. For notes payable or receivable that require the imputation of interest, have disclosures included:
(1) A description of the note?
(2) The effective interest rate?
(3) The face amount of the note?
(4) The amount of discount or premium resulting from present value determination?
(5) The amortization of the discount or premium to interest?
e. The amount of interest paid (net of amounts capitalized) for each period for which a statement of cash flows is presented?
INTERIM FINANCIAL REPORTING
1. If the company uses estimated gross profit rates to determine the cost of goods sold during interim periods or uses other me
different from those used at annual inventory dates, have the following disclosures been made:
a. The method used at the interim date?

b. Any significant adjustments that result from reconciliations with the annual physical inventory?
2. When costs and expenses incurred in an interim period cannot be readily identified with the activities or benefits of other inte
periods, have disclosures been made about the nature and amount of such costs? (Disclosure is not required if items of a comp
nature are included in both the current interim period and the corresponding interim period of the preceding year.)
3. If revenues of the entity are subject to material seasonal variations, have the following disclosures been made to avoid the po
that interim results may be taken as fairly indicative of the estimated results for a full fiscal year?
a. The seasonal nature of the business activities?
b. Information for 12-month periods ended at the interim date for the current and preceding years (optional)?
4. Have disclosures been made of the reasons for significant variations in the customary relationship between income tax expe
pretax accounting income, if they are not otherwise apparent from the financial statements or from the nature of the entity’s bus
19)
5. Are extraordinary items, discontinued operations, unusual and infrequently occurring transactions, and events that are mater
operating results of the interim period reported separately and included in the determination of net income for the interim period
they occur? (, 21)
6. Have disclosures been made about contingencies and other uncertainties that could be expected to affect the fairness of pre
of the interim financial information? (Such disclosures should be repeated in interim and annual reports until the contingencies
removed or resolved or have become immaterial.) (, 22)
7. Have disclosures been made of any changes in accounting principles or practices from those applied in: (, 23)
a. The comparable interim period of the prior year?
b. The preceding interim periods in the current year?
c. The prior annual financial statements?
8. If there were changes in accounting principles that required retroactive restatement of previously issued financial statements
effect on all periods presented been disclosed?
9. Has the effect of a change in accounting estimate, including a change in the estimated effective annual tax rate, been disclos
material in relation to any period presented?
10. Have the cumulative effects of an accounting change or correction of an error that are material to an interim period, but not
the estimated income for the full fiscal year or to the trend of earnings, been disclosed separately in the interim period? (, 29)
11. Have the gross and net of tax effects of prior-period adjustments of net income been disclosed in the interim period in which
adjustments are made?
12. Have the following disclosures been made in interim financial statements about an adjustment related to prior interim period
current fiscal year:
a. The effect on income from continuing operations and net income for each prior interim period of the current fiscal year?
b. Restated income from continuing operations and net income for each prior interim period?
13. Have the following disclosures about a cumulative effect-type accounting change, other than changes to LIFO, been made
financial reports:
a. In financial reports for the interim period in which the new accounting principle is adopted, have disclosures been made of:
(1) The nature of and justification for the change?
(2) The effect of the change on income from continuing operations and net income (and related per share amounts for public co
for the interim period in which the change is made? (If the change is made in a period other than the first interim period of a fisc
the effect of the change on income from continuing operations, net income, and related per share amounts for each prechange
period of the fiscal year should be disclosed. Also, the restated income from continuing operations, net income, and related per
amounts for each prechange interim period of the fiscal year should be disclosed.)
(3) Income from continuing operations and net income (and related per share amounts for public companies) computed on a pr
basis for (i) the interim period in which the change is made and (ii) any interim periods of prior fiscal years for which financial inf
being presented? (If no financial information for interim periods of prior fiscal years is being presented, disclosure shall be made
period of change, of the actual and pro forma amounts of income from continuing operations, net income, and related per share
for the interim period of the immediately preceding fiscal year that corresponds to the interim period in which the changes are m
b. In year-to-date and last-12-months-to-date financial reports that include the interim period in which the new accounting princi
adopted, have disclosures been made of:
(1) The effect of the change on income from continuing operations and net income (and related per share amounts for public co
for the interim period in which the change is made?
(2) Income from continuing operations and net income (and related per share amounts for public companies) computed on a p
basis for (i) the interim period in which the change is made and (ii) any interim periods of prior fiscal years for which financial inf
being presented? (If no financial information for interim periods of prior fiscal years is being presented, disclosure should be ma
period of change, of the actual and pro forma amounts of income from continuing operations, net income, and related per share
for the interim period of the immediately preceding fiscal year that corresponds to the interim period in which the changes are m
c. In financial reports for subsequent (postchange) interim periods of the fiscal year in which the new accounting principle is ado
have disclosures been made of the effect of the change on income from continuing operations and net income (and related per
amounts for public companies) for that postchange interim period?
14. For changes in accounting principles when neither the cumulative effect of the change nor the pro forma amounts can be co
(principally a change to the LIFO method of inventory pricing), have the following disclosures been made:
a. An explanation of the reasons for omitting accounting for the cumulative effect of the change?
b. An explanation of the reasons for omitting disclosure of pro forma amounts for prior years?
Items 15 and 16 are additional disclosures that are applicable only to publicly-held companies
15. For publicly traded companies that report summarized financial information to their security holders at interim dates (includin
on fourth quarters), have the following items, at a minimum, been reported:
a. Sales or gross revenues?
b. Provision for income taxes?

c. Extraordinary items (including related income tax effects)?
d. Cumulative effect of a change in accounting principles or practices?
e. Net income?
f. Comprehensive income?
g. Basic and diluted earnings per share data for each period presented?
h. Seasonal revenue, costs, or expenses?
i. Significant changes in estimates or provisions for income taxes?
j. Disposal of a segment of a business and extraordinary, unusual or infrequently occurring items?
k. Contingent items?
l. Changes in accounting principles or estimates?
m. Significant changes in financial position?
n. The following information about reportable operating segments (including provisions related to restatement of segment inform
previously issued financial statements):
(1) Revenues from external customers?
(2) Intersegment revenues?
(3) A measure of segment profit or loss?
(4) Total assets for which there has been a material change from the amount disclosed in the last annual report?
(5) A description of differences from the last annual report in the basis of segmentation or in the measurement of segment profi
(6) A reconciliation of the total of the reportable segments’ measures of profit or loss to the enterprise’s consolidated income be
income taxes, extraordinary items, discontinued operations, and the cumulative effect of changes in accounting principles? (Ho
for example, an enterprise allocates items such as income taxes and extraordinary items to segments, the enterprise may choo
reconcile the total of the segments’ measures of profit or loss to consolidated income after those items. Significant reconciling it
be separately identified and described in that reconciliation.)
16. If financial information is not separately reported for the fourth quarter, or that information is not presented in the annual rep
the following information about the fourth quarter been disclosed in a note to the annual financial statements: ( -3, 14)
(1) Disposal of a segment of a business?
(2) Extraordinary, unusual, or infrequent transactions or events?
(3) The aggregate effect of year-end adjustments that are material to the operating results of the fourth quarter?
(4) Accounting changes presented in the manner required for interim accounting changes?
LEASES—LESSEES
1. Is there a general description of leasing arrangements including, but not limited to, the following: ( -13, 16)
a. The basis on which contingent rental payments are determined?
b. The existence and terms of renewal or purchase options and escalation clauses?
c. Restrictions imposed by lease agreements such as those concerning dividends, additional debt, and further leasing?
2. Has the nature and extent of leasing transactions with related parties been disclosed? ( -13, 29)
3. Are the following disclosures made for capital leases: ( -13, pars. 13, 16)
a. The gross amount of assets recorded under capital leases as of the date of each balance sheet presented by major classes
to nature or function? (This information may be combined with the comparable information for owned assets.)
b. Capitalized lease obligations separately identified in the balance sheet and appropriately classified as current and noncurren
c. Future minimum lease payments as of the date of the latest balance sheet presented, in the aggregate and for each of the fiv
succeeding fiscal years, with separate deductions from the total for the amount representing executory costs (including any pro
thereon), that are included in the minimum lease payments, and for the amount of the imputed interest necessary to reduce the
minimum lease payments to present value?
d. The total of minimum sublease rentals to be received in the future under noncancelable subleases as of the date of the lates
sheet presented?
e. Total contingent rentals actually incurred for each period for which an income statement is presented?
f. Amortization of capitalized leases separately reported on the income statement or presented in a note to the financial stateme
amortization may be combined with depreciation expense, but that fact must be disclosed.)
4. Are the following disclosures made for operating leases having initial or remaining noncancelable lease terms in excess of on
-13, 16)
a. Future minimum rental payments required as of the date of the latest balance sheet presented, in the aggregate and for each
succeeding fiscal years?
b. The total amount of minimum rentals to be received in the future under noncancelable subleases as of the date of the latest
sheet presented?
5. Are the following disclosures made for all operating leases, except for rental payments under leases with terms of a month o
were not renewed:
a. Rental expense for each period for which an income statement is presented?
b. Presentation of separate amounts for minimum rentals, contingent rentals, and sublease rental income?
6. For seller-lessee transactions, is there a description of the terms of the sale-leaseback transaction including future commitme
obligations, provisions, or circumstances that require or result in the seller-lessee’s continuing involvement?
7. If a sale-leaseback transaction is accounted for by the deposit method or as a real estate financing arrangement, are the follo
disclosures made:
a. The obligation for future minimum lease payments as of the date of the latest balance sheet presented in the aggregate and
the five succeeding fiscal years?
b. The total of minimum sublease rentals, if any, to be received in the future under noncancelable subleases in the aggregate a
each of the five succeeding fiscal years?
LEASES—LESSORS
1. Is there a general description of the lessor’s leasing arrangements?
2. Has the nature and extent of leasing transactions with related parties been disclosed?
3. For sales-type and direct-financing leases, are the following components of the net investment in sales-type and direct financ
disclosed as of the date of each balance sheet presented:
a. Future minimum lease payments to be received with separate deductions for (1) amounts representing executory costs, inclu
profit thereon, included in the minimum lease payments and (2) the accumulated allowance for uncollectible minimum lease pa
receivable?
b. The unguaranteed residual values accruing to the benefit of the lessor?
c. Initial direct costs for direct financing leases only?
d. Unearned income?
4. Are the following disclosures made for sales-type and direct financing leases:
a. Future minimum lease payments to be received for each of the five succeeding fiscal years as of the date of the latest balanc
presented?
b. Total contingent rentals included in income for each period for which an income statement is presented?
5. Are the following disclosures made for operating leases:
a. The cost and carrying amount, if different, of property on lease or held for leasing, by major classes of property according to
function, and the amount of accumulated depreciation in total as of the date of the latest balance sheet presented?
b. Minimum future rentals on noncancelable leases as of the date of the latest balance sheet presented, in the aggregate and f
the five succeeding fiscal years?
c. Total contingent rentals included in income for each period for which an income statement is presented?
6. Are the following disclosures made for leveraged leases:
a. The amount of related deferred taxes presented separately from the remainder of the net income investment?
b. Separate presentation (in the income statement or in related notes) of pretax income from the leveraged lease, the tax effect
income, and the amount of investment tax credit recognized as income during the period?
7. If leveraged leasing is a significant part of the lessor’s business activities in terms of revenue, net income, or assets, are the
components of the net investment in leveraged leases disclosed in notes to the financial statements:
a. Rentals receivable, net of that portion of the rental applicable to principal and interest on the nonrecourse debt?
b. A receivable for the amount of the investment tax credit to be realized on the transaction?
c. The estimated residual value of the leased assets? (The estimated residual value should not exceed the amount estimated a
inception of the lease, except as provided in .)
d. Unearned and deferred income consisting of (1) the estimated pretax lease income (or loss), after deducting initial direct cos
remaining to be allocated to income over the lease term and (2) the investment tax credit remaining to be allocated to income o
lease term?
8. For lessors that recognize contingent rental income, have disclosures been made of the following:
a. The accounting policy for recognizing contingent rental income?
b. If contingent rental income is recognized (accrued) prior to achieving the specified target that triggers the contingent rents, th
on net income of accruing such rents prior to achieving the specified target?
LEASES-TAX LEASES
1. If the entity is involved in the sale or purchase of tax benefits through tax leases, have disclosures been made of the followin
a. The method of recognizing revenue?
b. The method of allocating the income tax benefits and asset costs to current and future periods?
2. If unusual or infrequent, have disclosures been made of the nature and financial effects of sales or purchases of tax benefits
tax leases on the face of the income statement or in a note to the financial statements?
3. Have significant contingencies existing with respect to sales or purchases of tax benefits through tax leases been disclosed?
4. If comparative financial statements are presented, have disclosures been made of any changes in the method of accounting
or purchases of tax benefits through tax leases that significantly affect comparability?
5. If a significant variation in the customary relationship between income tax expense and pretax accounting income occurs as
sales or purchases of tax benefits through tax leases, has the estimated amount and nature of the variation been disclosed?
LENDING ACTIVITIES
1. If the company anticipates prepayments of loan balances, have disclosures been made regarding the policy and the significa
assumptions underlying the prepayment estimates?
LIMITED LIABILITY COMPANIES OR PARTNERSHIPS (LLCs OR LLPs)
1. In addition to all the disclosures that typically apply to any other business entity, are the following additional disclosures made
financial statements of an LLC or an LLP:
a. A description of any limitation of the LLC or LLP members’ liability?

b. The different classes of members’ interests and the respective rights, preferences, and privileges of each class?
c. The amount of each class of members’ equity either in the equity section of the balance sheet or in the notes to the financial
statements?
d. The date the LLC or LLP will cease to exist, if the entity has a finite life?
e. In the year of formation for LLCs and LLPs formed by combining entities under common control or by conversion from anothe
entity, the fact that the assets and liabilities were previously held by a predecessor entity or entities?
LONG-TERM CONTRACTS
1. Have the following disclosures been made for long-term contracts:
a. The method used to account for long-term contracts (i.e., the percentage-of-completion method or the completed-contract m
b. Departure from the basic revenue recognition policy for a single contract or group of contracts?
c. The policies relating to combining and segmenting contracts, if applicable?
d. When the percentage-of-completion method of accounting is used, the method of measuring the extent of progress toward c
(e.g., cost-to-cost, direct labor)?
e. If the completed-contract method is used, the criteria used to determine substantial completion? ( 81-1, 52)
f. The amount of revenue from claims recognized in excess of the agreed contract price? ( 81-1, pars. 65-67)
g. If the contractor recognizes revenues from claims only when the amounts have been received or awarded, the amounts of su
revenues recorded during the period? ( 81-1, 66)
h. The effect of significant revisions in contract estimates? ( 81-1, 84)
i. The amount of advances, if any, offset against cost-type contract receivables? ( -43, chapter 11A, 22)
j. Provisions for losses on contracts separately shown as liabilities on the face of the balance sheet, if material? ( 81-1, 89)
k. Provisions for losses on contracts that are material, unusual, or infrequent shown as a separate component of construction c
face of the income statement? ( 81-1, 88)
l. The nature and amount of any large or unusual contract commitments?
m. Unbilled costs and fees under cost-type contracts shown separately from billed accounts receivable? ( -43, chapter 11A, 21
NONMONETARY TRANSACTIONS
1. Are the following disclosures made for nonmonetary transactions: (-29, 28)
a. The nature of the transactions?
b. The basis of accounting for the assets transferred?
c. Gains or losses, if any, recognized on transfers?

2. Are gains and losses resulting from involuntary conversions of nonmonetary assets to monetary assets reported as either an
extraordinary item or an unusual or infrequent item, as appropriate? (FIN-30, 4)
PENSION AND POSTRETIREMENT BENEFIT PLANS
Pension and Postretirement Defined Benefit Plans—Reduced Disclosure Requirements For Nonpublic Companies
1. Has the following information about the plan been disclosed, for each balance sheet presented:
a. The benefit obligation?
b. The fair value of plan assets?
c. The funded status of the plan?
d. Employer contributions?
e. Participant contributions?
f. Benefits paid?
g. The amounts recognized in the balance sheet, including:
(1) The net pension prepaid assets or accrued liabilities?
(2) The amount of any intangible asset recognized? (Applicable to pension plans only)
(3) The amount of accumulated other comprehensive income recognized pursuant to -87, paragraph 37, as amended? (Applic
pension plans only)
2. Has the amount of net periodic benefit cost recognized and the amount included within other comprehensive income arising
change in the minimum pension liability recognized pursuant to -87, paragraph 37, as amended, been disclosed, for each inco
statement presented?
3. Have the following assumptions used in the accounting for the plan been disclosed, for each balance sheet presented:
a. The weighted average assumed discount rate?
b. The weighted average rate of compensation increase (for pay-related plans)?
c. The weighted average expected long-term rate of return on plan assets?
4. Has disclosure been made of the assumed health care cost trend rate(s) for the next year used to measure the expected cos
benefits covered by the plan (gross eligible charges) and a general description of the direction and pattern of change in the ass
trend rates thereafter, together with the ultimate trend rate(s) and when that rate is expected to be achieved? (Applicable to he
postretirement benefit plans only)
5. Have the following transactions and events been disclosed:
a. The amounts and types of securities of the employer and related parties included in plan assets?
b. The approximate amount of future annual benefits of plan participants covered by insurance contracts issued by the employe
related parties?
c. Any significant transactions between the employer or related parties and the plan?
d. The nature and effect of significant nonroutine events, such as amendments, combinations, divestitures, curtailments, and se
6. For employers with two or more defined benefit pension plans, if disclosures for plans that have projected benefit obligations
of plan assets and plans that have plan assets in excess of projected benefit obligations are presented on a combined basis, ha
following disclosures been made separately with respect to plans that have projected benefit obligations in excess of plan asse
a. The aggregate projected benefit obligations?
b. The aggregate fair value of plan assets?
7. For employers with two or more defined benefit pension plans, if disclosures for plans that have accumulated benefit obligati
excess of plan assets and plans that have plan assets in excess of accumulated benefit obligations are presented on a combin
have the following disclosures been made separately with respect to plans that have accumulated benefit obligations in excess
assets:
a. The aggregate accumulated benefit obligations?
b. The aggregate fair value of plan asset?
8. If two or more defined benefit pension plans are combined, have the amounts recognized as prepaid benefit costs and accru
liabilities been disclosed separately?
9. Have domestic and foreign defined benefit pension plans been disclosed separately if the benefit obligations of the foreign p
significant relative to the total benefit obligation and the plans use significantly different assumptions? ( 7)
10. If a gain or loss from settlement or curtailment has not been recognized in the current year and the employer’s financial pos
results of operations would have been materially different had it been recognized, have appropriate disclosures been made? ( -
No. 28)
Pension and Postretirement Defined Benefit Plans—Public Companies (And Nonpublic Companies That Elect to Voluntarily Pro
Additional Disclosures)
1. Has disclosure been made of the amount of net periodic cost recognized, for each income statement presented, showing sep
the following:
a. Service cost component?
b. Interest cost component?
c. Expected return on plan assets for the period?
d. Amortization of the unrecognized transition obligation or asset?
e. Amount of recognized gains or losses?
f. Amount of prior service cost recognized?

g. Amount of gain or loss recognized due to a settlement or curtailment?
2. Has disclosure been made of the funded status of the plan, amounts not recognized in the entity’s balance sheet, and amoun
recognized in the entity’s balance sheet, including the following, for each balance sheet presented:
a. Amount of any unamortized prior service cost?
b. Amount of any unrecognized net gain or loss (including asset gains and losses not yet reflected in market-related value)?
c. Amount of any remaining unamortized, unrecognized net obligation or net asset at the initial application of -?
d. Amount of net pension asset or liability?
e. Any intangible asset and the amount of accumulated other comprehensive income? (Applicable to pension plans only)
3. Has a reconciliation of the beginning and ending balances of the benefit obligation been disclosed, for each balance sheet pr
with separate disclosure of the following:
a. Service cost?
b. Interest cost?
c. Contributions by plan participants?
d. Actuarial gains and losses?
e. Foreign currency exchange rate changes?
f. Benefits paid?
g. Plan amendments?
h. Business combinations?
i. Divestitures?
j. Curtailments?
k. Settlements?
l. Special termination benefits?
4. Has a reconciliation of the beginning and ending balances of the fair value of plan assets been disclosed, for each balance s
presented, including the effects of the following:
a. Actual return on plan assets?
b. Foreign currency exchange rate changes?
c. Contributions by employer?
d. Contributions by plan participants?

e. Benefits paid?
f. Business combinations?
g. Divestitures?
h. Settlements?
5. Has the amount included within other comprehensive income arising from a change in the additional minimum pension liabili
recognized been disclosed, for each income statement presented?
6. Have the following assumptions used in the accounting for the plan been disclosed, for each balance sheet presented:
a. The weighted average assumed discount rate?
b. The weighted average rate of compensation increase (for pay-related plans)?
c. The weighted average expected long-term rate of return on plan assets?
7. Has disclosure been made of the assumed health care cost trend rate(s) for the next year used to measure the expected cos
benefits covered by the plan (gross eligible charges) and a general description of the direction and pattern of change in the ass
trend rates thereafter, together with the ultimate trend rate(s) and when that rate is expected to be achieved? (Applicable to hea
postretirement benefit plans only)
8. Has disclosure been made of the effect of a one-percentage-point increase and the effect of a one-percentage-point decreas
assumed health care cost trend rates on: (Applicable to healthcare postretirement benefit plans only)
a. The aggregate of the service and interest cost components of net periodic postretirement health care benefit cost of the curre
b. The accumulated postretirement benefit obligation for health care benefits as of the current balance sheet?
9. Have the following transactions and events been disclosed:
a. The amounts and types of securities of the employer and related parties included in plan assets?
b. The approximate amount of future annual benefits of plan participants covered by insurance contracts issued by the employe
related parties?
c. Any significant transactions between the employer or related parties and the plan?
d. Any alternative amortization method used to amortize prior service costs or unrecognized net gains and losses?
e. Any substantive commitment, such as past practice or a history of regular benefit increases, used as the basis for accounting
benefit obligation?
f. The cost of providing special or contractual termination benefits recognized during the period and a description of the nature o
event?
g. An explanation of any significant change in the benefit obligation or plan assets not otherwise apparent in the above disclosu
10. For employers with two or more defined benefit pension plans, if disclosures for plans that have projected benefit obligation
of plan assets and plans that have plan assets in excess of projected benefit obligations are presented on a combined basis, ha
following disclosures been made separately with respect to plans that have projected benefit obligations in excess of plan asse
a. The aggregate projected benefit obligations?
11. For employers with two or more defined benefit pension plans, if disclosures for plans that have accumulated benefit obliga
excess of plan assets and plans that have plan assets in excess of accumulated benefit obligations are presented on a combin
have the following disclosures been made separately with respect to plans that have accumulated benefit obligations in excess
assets:
a. The aggregate accumulated benefit obligations?
12. If two or more defined benefit pension plans are combined, have the amounts recognized as prepaid benefit costs and accr
benefit liabilities been disclosed separately?
13. Have domestic and foreign defined benefit pension plans been disclosed separately if the benefit obligations of the foreign
significant relative to the total benefit obligation and the plans use significantly different assumptions?
14. If a gain or loss from settlement or curtailment has not been recognized in the current year and the employer’s financial pos
results of operations would have been materially different had it been recognized, have appropriate disclosures been made?
Pension and Postretirement Defined Contribution Plans—All Companies
1. Is the following information about the entity’s defined contribution pension plans disclosed separately from the entity’s define
pension plans: ( 9)
a. A brief description of the plan?
b. The amount of cost recognized during the period?
c. The nature and effect of significant matters affecting comparability of information for all periods presented such as a change
of employer contributions, a business combination, or a divestiture?
Pension and Postretirement Multiemployer Plans—All Companies
1. For multiemployer plans, has the following been disclosed:
a. Amount of contributions to such plans during the period? (Total contributions to multiemployer plans may be disclosed withou
separating the amounts attributable to pensions and other postretirement benefits.)
b. A description of the nature and effect of any changes affecting comparability (such as a change in the rate of employer contr
business combination, or a divestiture)?
c. The information required by -5, if it is either probable or reasonably possible that an employer would withdraw from a multiem
plan under circumstances that would give rise to a withdrawal obligation? (Applicable to pension plans only)
d. The information required by -5, if it is either probable or reasonably possible that (a) an employer would withdraw from a mu
postretirement benefit plan under circumstances that would give rise to a withdrawal obligation, or (b) an employer’s contributio
multiemployer postretirement benefit plan would be increased during the remainder of a contract period in order to maintain a n
level of benefit coverage (a “maintenance of benefits” clause)? (Applicable to postretirement benefit plans only)
POSTEMPLOYMENT BENEFITS
1. If the company has not accrued an obligation for postemployment benefits (e.g., salary continuation, supplemental unemploy
benefits, severance benefits, disability related benefits, job training and counseling, and continuation of health and insurance co
provided to former or inactive employees, including their beneficiaries and covered dependents, after employment but before re
only because the amount cannot be reasonably estimated, has that fact been disclosed?
PRIOR-PERIOD ADJUSTMENTS (CORRECTION OF ERRORS)
1. Are the following disclosures made for errors discovered in previously issued financial statements (disclosures required only
year in which the error is discovered):
a. The nature of the error?
b. The effect of the correction of the error on income before extraordinary items and net income (and related per share amounts
presented) in the period of correction?
c. The amount of income tax applicable to each prior-period adjustment?
2. If the effect of an error is presented in single-period financial statements, is the effect (gross and net of tax) on the opening b
retained earnings and on net income (and on related per share amounts when presented) of the preceding year disclosed?
3. If the effect of an error is presented in comparative financial statements, is the effect presented as an adjustment to the open
balance of retained earnings and by restating prior periods’ financial statements affected by the error?
QUASI-REORGANIZATIONS AND REORGANIZATIONS UNDER THE BANKRUPTCY CODE
Quasi-reorganizations
1. After a quasi-reorganization or corporate readjustment:
a. Was the offsetting adjustment charged to retained earnings?
b. If the adjustment exceeds the balance in the retained earnings account, was the difference charged to additional paid-in cap
c. Has a new retained earnings account been established and dated to show that it runs from the effective date of the readjustm
dating should be disclosed in the financial statements until such time as the effective date is no longer deemed to possess any
significance, which is generally not more than 10 years.)
2. Are assets carried forward as of the date of the readjustment at fair amounts?
3. If the fair value of any asset is not readily determinable and a conservative estimate was used:
a. Was the amount described as an estimate?

b. Was any material difference arising through realization, or otherwise, and not attributable to events occurring or circumstance
after the readjustment date not carried to income or retained earnings?
4. For companies that recognize the tax benefits of prior deductible temporary differences and carryforwards in income rather th
contributed capital (i.e., companies that have previously adopted -96 and effected a quasi-reorganization that involved only the
elimination of a deficit in retained earnings), have the following disclosures been made:
a. The date of the quasi-reorganization?
b. The manner of reporting the tax benefits and that it differs from present accounting requirements for other entities?
c. The effect of those tax benefits on income from continuing operations, income before extraordinary items, and net income (a
related per share amounts, if applicable)?
Reorganizations Under The Bankruptcy Code
1. Have the following disclosures been made for companies that have filed petitions with the Bankruptcy Court and that expect
reorganize as going concerns under Chapter 11:
a. Prepetition liabilities, including claims that become known after a petition is filed, which are not subject to reasonable estimat
b. Principal categories of claims subject to compromise?
c. The extent to which reported interest expense differs from stated contractual interest?
d. Details of operating cash receipts and payments resulting from the reorganization if the indirect method is used in the statem
cash flows?
e. In the earnings per share calculation whether it is probable that the plan will require the issuance of common stock or commo
equivalents, thereby diluting current equity interests?
2. Have the following disclosures been made in consolidated financial statements including one or more entities in reorganizatio
Chapter 11 and one or more entities not in reorganization proceedings:
a. Condensed combined financial statements of the entities in reorganization proceedings?
b. Intercompany receivables and payables of entities in reorganization?
3. Have the following disclosures been made for companies that have emerged from Chapter 11 under confirmed plans that ad
start reporting: ( 90-7, 39)
a. Adjustments to the historical amounts of individual assets and liabilities?
b. The amount of debt forgiveness?
c. The amount of prior retained earnings or deficit eliminated?
d. Significant matters relating to the determination of reorganization value such as:
(1) The method or methods used to determine reorganization value and factors such as discount rates, tax rates, the number o
which cash flows are projected and the method of determining terminal value?
(2) Sensitive assumptions about which there is a reasonable possibility of the occurrence of a variation that would significantly a
measurement of reorganization value?
(3) Assumptions about anticipated conditions that are expected to be different from current conditions, unless otherwise appare
4. Has the following disclosure been made for companies that have emerged from Chapter 11 under confirmed plans that adop
start reporting and have recorded an adjustment that resulted from a preconfirmation contingency: (PB-11, pars. 8-9)
a. The adjustment in income or loss from continuing operations of the emerged entity?
RELATED-PARTY TRANSACTIONS
1. Are the following disclosures made for material related-party transactions (other than compensation arrangements, expense
allowances, and other similar items in the ordinary course of business): ( -57, 2)
a. The nature of the relationship of the parties involved?
b. A description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of
periods for which income statements are presented, and such other information deemed necessary to an understanding of the
the transactions on the financial statements?
c. The dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any
the method of establishing the terms from those used in the preceding period?
d. Amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the ter
manner of settlement?
2. Are disclosures concerning related-party transactions worded in a manner that does not imply that the transactions were con
on terms equivalent to those that prevail in arm’s-length transactions, unless such representations can be substantiated?
3. Is the nature of the control relationship disclosed, even though there are no related-party transactions, when the client and o
other enterprises are under common ownership or management control and the existence of that control could result in operatin
or financial position of the client significantly different from those that would have resulted if the client were autonomous?
4. Are notes or accounts receivable due from officers, employees, or affiliated enterprises shown separately and not included u
general heading, such as notes receivable or accounts receivable?
RESEARCH AND DEVELOPMENT
1. Are the following disclosures made for an entity that accounts for its obligations under a research and development arrangem
contract to perform research and development for others: ( -68, 14)
a. The terms of significant agreements under the research and development arrangement (including royalty arrangements, purc
provisions, license agreement, and commitments to provide additional funding) as of the date of each balance sheet presented
b. The amount of compensation earned and costs incurred under such contracts for each period for which an income statemen
presented?
2. Is disclosure made of total research and development costs charged to expense in each period for which an income stateme
presented? ( -2, 13)
5. For research and development assets acquired in a business combination accounted for as a purchase that have no alternat
use, has disclosure been made of the portion of the purchase price that has been allocated to research and development and c
expense at the date of consummation of the business combination? (FIN-4, 5)
SEGMENT INFORMATION
1. Have disclosures been made of the factors used to identify the entity’s reportable segments, including the basis of organizati
as: ( , 26)
a. Differences in products and services?
b. Geographic areas?
c. Regulatory environments?
d. A combination of factors?
2. Have the types of products and services from which each reportable segment derives its revenues been disclosed?
3. Have the amount of profit or loss and total assets for each reportable segment been disclosed?
4. Have the following financial information been disclosed about each reportable segment, if the specified amounts are included
determination of segment profit or loss reviewed by the chief operating decision maker:
a. Revenues from external customers?
b. Revenues from transactions with other operating segment?
c. Interest revenue (this may be reported net of interest expense if a majority of the segment’s revenues are from interest and th
operating decision maker relies primarily on net interest revenue to assess performance)?
d. Interest expense?
e. Depreciation, depletion, and amortization?
f. Unusual items, as described in Opinion No. 30?
g. Equity in the net income of investees accounted for by the equity method?
h. Income tax expense or benefit?
i. Extraordinary items?
j. Significant noncash items other than depreciation, depletion and amortization?
5. Have the following financial information been disclosed about each reportable segment, if the specified amounts are included
determination of segment assets reviewed by the chief operating decision maker:
a. The amount of investment in equity-method investees?

b. Total expenditures for additions to long-lived assets (other than financial instruments, long-term customer relationships of a f
institution, mortgage and other servicing rights, deferred policy acquisition costs, and deferred tax assets)?
6. Have disclosures been made of the measurements used for segment profit or loss and segment assets for each reportable s
including at a minimum the following information:
a. The basis of accounting for any transactions between reportable segments?
b. The nature of any differences between the measurements of the reportable segments’ profit or loss and the entity’s consolida
income before income taxes, extraordinary items, discontinued operations, and cumulative effect of changes in accounting prin
c. The nature of any differences between the measurements of the reportable segments’ assets and the entity’s consolidated a
d. The nature of any changes from prior periods in the measurement methods used to determine reported segment profit or los
effect, if any, of those changes on the amount of segment profit or loss?
e. The nature and effect of any asymmetrical allocations to segments (for example, an entity might allocate depreciation expens
segment without allocating the related depreciable assets to that segment)?
7. Have reconciliations of all of the following items been disclosed:
a. The total of the reportable segments’ revenues to the entity’s consolidated revenues?
b. The total of the reportable segments’ profit or loss to the entity’s consolidated income before income taxes, extraordinary item
discontinued operations, and cumulative effect of changes in accounting principles? (However, if an entity allocates items such
taxes and extraordinary items to segments, the entity may choose to reconcile the total of the segments’ profit or loss to consol
income after those items.)
c. The total of the reportable segments’ assets to the entity’s consolidated assets?
d. The total of the reportable segments’ amounts for every other significant item of information disclosed to the corresponding
consolidated amount (e.g., an entity may choose to disclose liabilities for its reportable segments, in which case the entity woul
the total of reportable segments’ liabilities for each segment to the enterprise’s consolidated liabilities if the segment liabilities a
significant)?
8. Have the following items been disclosed on an “entity-wide” basis, unless they are disclosed as part of the information about
segments (Note: entities that have a single reportable segment are also required to disclose this information): ( , pars. 36-39)
a. Revenues from external customers for each product and service or each group of similar products and services, based on in
used to produce the entity’s general-purpose financial statements (unless it is impracticable to do so, in which case that fact sh
disclosed)?
b. The following information about geographic areas, based on information used to produce the entity’s general-purpose financ
statements (unless it is impracticable to do so, in which case that fact should be disclosed):
(1) Revenues from external sources (a) attributed to the entity’s country of domicile, and (b) attributed to all foreign countries in
which the entity derives revenues? (If revenues from external customers attributed to an individual foreign country are material,
revenues should be disclosed separately; an entity should disclose the basis for attributing revenues from external customers to
countries.)
(2) Long-lived assets (other than financial instruments, long-term customer relationships of a financial institution, mortgage and
servicing rights, deferred policy acquisition costs, and deferred tax assets) located in (a) the entity’s country of domicile and (b)
countries in total in which the entity holds assets? (If assets in an individual foreign country are material, those assets should be
separately.)
c. The extent of the entity’s reliance on a single external customer from which 10% or more of revenues are derived, the amoun
revenues earned from each such single customer, and the operating segment reporting the revenue?
9. Have the following information been disclosed about each reportable segment in condensed financial statements of interim p
33)
a. Revenues from external customers?
b. Intersegment revenues?
c. Segment profit or loss?
d. Total assets for which there has been a material change from the amount disclosed in the last annual report?
e. A description of differences from the last annual report in the basis of segmentation or in the basis of measurement of segme
loss?
f. A reconciliation of the total of the reportable segments’ profit or loss to the entity’s consolidated income before income taxes,
extraordinary items, discontinued operations, and cumulative effect of changes in accounting principles? (However, if an entity
items such as income taxes and extraordinary items to segments, the entity may choose to reconcile the total of the segments’
loss to consolidated income after those items).
10. If an entity changes the structure of its internal organization in a manner that causes the composition of its reportable segm
change, has the corresponding information for earlier periods, including interim periods, been restated, unless it is impracticable
(Note: The entity should also disclose that it has restated the segment information for earlier periods. If the segment information
periods, including interim periods, is not restated to reflect the change, the entity should disclose in the year in which the chang
segment information for the current period under both the old basis and the new basis of segmentation, unless it is impracticab
so.) ( , pars. 34-35)
STOCK-BASED COMPENSATION
In October 1995 the B issued -123 (Accounting for Stock-Based Compensation) which is effective for financial statements for
beginning after December 15, 1995. Due to the controversy involving this B project, the accounting requirements for measuring
compensation cost under -123 need not be followed unless an entity elects to do so; however, the disclosure requirements of
to all entities. Also, entities that continue to measure compensation cost under the old rules must make certain pro forma disclo
all awards granted in fiscal years beginning after December 15, 1994.
1. Are the following disclosures made regarding the entity’s stock-based compensation plans (and separately for each type of a
granted to the extent separate disclosure would be useful) for all companies regardless of whether they measure compensation
using -123 or : ( -123, pars. 46-48)
a. A description of the plan, including the general terms of awards, such as vesting requirements, maximum term of options gra
number of shares authorized for grants of options or other equity instruments?
b. The number and weighted-average exercise prices of options that were:
(1) Outstanding at the beginning of the year?

(2) Outstanding at the end of the year?
(3) Granted during the year?
(4) Exercised during the year?
(5) Exercisable at the end of the year?
(6) Forfeited during the year?
(7) Expired during the year?
c. Weighted-average fair value (as of grant date) of options granted during the year? (Note: If the exercise price of some option
from the market price of the stock on the grant date, weighted-average exercise prices and weighted-average fair values of opt
should be disclosed separately for options whose exercise price (a) equals, (b) exceeds, or (c) is less than the market price of t
on the date of grant.)
d. Number and weighted-average fair value (as of grant date) of equity instruments other than options (e.g., shares of nonveste
granted during the year?
e. A description of the method and significant assumptions used during the year to estimate the fair values of options, including
free interest rate, expected life, expected volatility, and expected dividends?
f. Total compensation cost recognized in the financial statements?
g. The terms of significant modifications of outstanding awards?
h. The range of exercise prices, the weighted-average exercise price, and the weighted-average remaining contractual life for o
outstanding as of the date of the latest balance sheet presented, and for each range:
(1) The number, weighted-average exercise price, and weighted-average remaining contractual life of options outstanding?
(2) The number and weighted-average exercise price of options currently exercisable?
2. If the entity is measuring stock-based compensation cost under the old rules, rather than -123, have pro forma net income (a
forma earnings per share, if earnings per share is presented) been disclosed, as if the fair value based method prescribed by -
been applied?
SUBSEQUENT EVENTS
1. Are appropriate adjustments made to the financial statements based on information that became available prior to the issuan
financial statements (the information provides evidence with respect to conditions that existed at the date of the balance sheet)
2. Are appropriate disclosures made in the financial statements based on information that became available prior to the issuanc
financial statements (although the information does not suggest that conditions existed at the date of the balance sheet, it is no
necessary to disclose such conditions in order for the financial statements not to be misleading)? ( -5, 11; AU 560.05-.07; AU 5
TERMINATION CLAIMS
1. If the total of the undeterminable parts of a termination claim is believed to be material, have the essential facts been disclos
Chapter 11C, 19)
2. Have material termination claims been separately disclosed in the balance sheet? ( -43, Chapter 11C, 21)
3. Has disclosure been made of the relationship between advances or other loans received on terminated contracts and the po
termination claim receivable? ( -43, Chapter 11C, 22)
4. If the amount of termination sales is material, has it been separately disclosed in the income statement? ( -43, Chapter 11C,
TRANSFERS AND SERVICING OF FINANCIAL ASSETS
Transfers of Financial Assets
1. Have the following disclosures been made for transfers of financial assets:
a. If the entity has entered into repurchase agreements or securities lending transactions, has the policy for requiring collate
other security been disclosed?
b. If the entity has pledged any of its assets as collateral that are not reclassified and separately reported in the balance she
disclosure been made of the carrying amount and classification of those assets as of the date of the latest balance sheet prese
c. If the entity has accepted collateral that it is permitted by contract or custom to sell or repledge, have the following disclos
made as of the date of each balance sheet presented:
(1) The fair value of the collateral?
(2) The portion of that collateral that it has sold or repledged?
(3) Information about the sources and uses of that collateral?
d. If it is not practicable to estimate the fair value of certain assets obtained or liabilities incurred in transfers of financial asse
the period, has disclosure been made of those items and the reasons why it is not practicable to estimate their fair value?
e. If the entity has securitized financial assets during any period presented and accounts for that transfer as a sale, have th
disclosures been made for each major asset type (e.g., credit card receivables, automobile loans, mortgage loans):
(1) The accounting policies for initially measuring the retained interests, if any, including the methodology (whether quoted mar
prices based on sales of similar assets and liabilities, or prices based on valuation techniques) used in determining their fair val
(2) The characteristics of securitizations (a description of the transferor's continuing involvement with the transferred assets, in
but not limited to: servicing; recourse; and restrictions on retained interests) and the gain or loss from sale of financial assets in
securitizations?
(3) The key assumptions used in measuring the fair value of retained interests at the time of securitization, including at a minim
quantitative information about discount rates; expected prepayments including the expected weighted-average life of prepayab
assets; and anticipated credit losses, if applicable?
(4) Cash flows between the securitization SPE (special purpose entity) and the transferor, unless reported separately elsewhe
financial statements or notes, including: proceeds from new securitizations; proceeds from collections reinvested in revolving-pe
securitizations; purchases of delinquent or foreclosed loans; servicing fees; and cash flows received on interests retained?
f. If the entity has retained interests in securitized financial assets at the date of the latest balance sheet presented, have th
disclosures been made for each major asset type (e.g., credit card receivables, automobile loans, mortgage loans):
(1) The accounting policies for subsequently measuring those retained interests, including the methodology (whether quoted m
price, prices based on sales of similar assets and liabilities, or prices based on valuation techniques) used in determining their f
(2) The key assumptions used in subsequently measuring the fair value of those interests, including at a minimum: quantitativ
information about discount rates; expected prepayments including the expected weighted-average life of prepayable financial a
anticipated credit losses, including expected static pool losses if applicable?
(3) A sensitivity analysis or stress test showing the hypothetical effect on the fair value of those interests of two or more unfavo
variations from the expected levels for each key assumption that is reported under (2) above independently from any change in
key assumption, and a description of the objectives, methodology, and limitations of the sensitivity analysis or stress test?
(4) For the securitized assets and any other financial assets that it manages together with them:
(i) The total principal amount outstanding, the portion that has been derecognized, and the portion that continues to b
recognized in each category reported in the balance sheet, at the end of the period?
(ii) Delinquencies at the end of the period?
(iii) Credit losses, net of recoveries, during the period?
(iv) Average balances during the period? (This disclosure item is encouraged, but not required.)
Servicing of Financial Assets and Liabilities
2. Have the following disclosures been made for all servicing assets and servicing liabilities:
a. The amounts of servicing assets or liabilities recognized and amortized during the period?
b. The fair value of recognized servicing assets and liabilities for which it is practicable to estimate that value, and the metho
significant assumptions used to estimate the fair value?
c. The risk characteristics of the underlying financial assets used to stratify recognized servicing assets for purposes of mea
impairment in accordance with
d. The activity in any valuation allowance for impairment of recognized servicing assets for each period for which results of o
are presented, including:
(1) Beginning and ending balances?
(2) Aggregate additions charged to operations?
(3) Aggregate reductions credited to operations?
(4) Aggregate direct write-downs charged against the allowances?

TROUBLED DEBT RESTRUCTURING—CREDITORS
1. Has the amount of commitments, if any, to lend additional funds to debtors owing receivables whose terms have been modifi
troubled debt restructuring been disclosed as of the date of each balance sheet presented?
loans as defined in
a. As of the date of each statement of financial position presented, the total recorded investment in the impaired loans at the en
period and (1) the amount of that recorded investment for which there is a related allowance for credit losses and the amount o
allowance and (2) the amount of that recorded investment for which there is no related allowance for credit losses?
b. The creditor’s policy for recognizing interest income on impaired loans, including how cash receipts are recorded?
c. For each period for which results of operations are presented:
(1) The average recorded investment in the impaired loans during each period?
(2) The related amount of interest income recognized during the time within that period that the loans were impaired?
(3) The amount of interest income recognized using a cash-basis method of accounting during the time within that period that th
were impaired, unless not practicable?
d. For each period for which results of operations are presented, have disclosures been made of the activity in the total allowan
credit losses related to loans, including the following:
(1) The balance in the allowance at the beginning and end of each period?
(2) Additions charged to operations?
(3) Direct writedowns charged against the allowance?
(4) Recoveries of amounts previously charged off?
TROUBLED DEBT RESTRUCTURING—DEBTORS
1. Are the following disclosures made (either in the body of the financial statements or in related notes) for the period in which t
troubled debt is restructured:
a. For each restructuring, a description of the principal changes in terms, the major features of settlement, or both?
b. Aggregate gain on restructuring of payables and the related income tax effect?
c. Aggregate net gain or loss on transfers of assets recognized during the period?
d. If applicable, the per share amount of the aggregate gain on restructuring, net of related income tax effect?
2. Are the following disclosures made for periods subsequent to the period in which the debt was restructured:
a. The extent to which amounts contingently payable are included in the carrying amount of restructured payables?
b. Total amounts that are contingently payable on restructured payables and the conditions under which those amounts would
payable or would be forgiven when there is at least a reasonable possibility that a liability for contingent payments will be incurr
Date
Date
Item Item Not
Present Present

Item Item Not

Present Present

Item Item Not

Present Present

YES NO N/A
______ ______ ______

_______ _______ ________
_______ ________ ________
_______ ________ ________
_______ ________ ________
_______ ________ ________
_______ ________ ________
_______ ________ ________

_______ ________ ________
_______ ________ ________
_______ ________ ________
_______ ________ ________
_______ ________ ________
_______ ________ ________

_______ ________ ________
_______ ________ ________

_______ ________ ________
_______ ________ ________
_______ ________ ________
_______ ________ ________
_______ ________ ________
_______ ________ ________
_______ ________ ________
_______ ________ ________
_______ ________ ________
_______ ________ ________

Audit Program Area:
AUDIT PROCEDURES WP Ref

Auditor Time Date Date Checked
Initials Spent Expected Finished Remarks By:
Purpose: To document key controls around the < >Cycle:
Location: Date:
Assertions
Presentation and Disclosure

Existence or Occurrence
Valuation or Allocation
Completeness
Accuracy
Cutoff
Control Objective: Risk: Action/Control Activity: Evaluation/Conclusion:
1
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Purpose: To document key controls around the < >Cycle:
Location: Date:
Assertions
Presentation and Disclosure

Existence or Occurrence
Valuation or Allocation
Completeness
Accuracy
Cutoff
Control Objective: Risk: Action/Control Activity: Evaluation/Conclusion:
21
22
23
24
25
26
27
28
29
30
31
Introduction: The table below presents an example internal control review template with related control points that may be in
place within the respective control cycle. This is not intended to prescribe a “cookie-cutter” approach to internal control
reviews; instead it is intended to represent a number of control points, of which management should identify the most
significant in maintaining its control over business cycle information.
Significant control points identified during process mapping should be tested during an internal control review. Other, less
significant points should be included in the process flow narrative describing the Control cycle. An example narrative is
presented below, in the right-hand column. It is the management’s option to include the narrative below, or to present it as a
separate document (such as internal process overviews or agency-based procedures). For that reason, the example
narrative below is “grayed out.” If this template is utilized but alternative documentation describes the process in the internal
control program work papers, please feel free to remove the column.
The Control objectives below are broken down into the following sub-cycles: General/Control Environment, (list additional
cycles for the area under review).
For the purpose of this generic document, the following terms are used: Define terms for example in the area of fixed asset -
Assets that are capitalized and depreciated over a period longer than one year are referred to as “fixed assets,” or as “capital
assets”- the terms are used interchangeably; and the person responsible for managing fixed assets at the department level
is termed the “Property Control Coordinator,” with the understanding that at one branch, it may be Facilities Management,
while at another it may be an official from the Business Office. Management are encouraged to substitute below the terms
that are in widespread use among their staff.
Notes:
(1) Each broad area is divided into subcycles. A subcycle is a sequence of related processes for which one set of
objectives and risks can be determined. Audit Assertions are the implicit or explicit claims and representations made by the
management responsible for the preparation of financial statements regarding the appropriateness of the various elements
of financial statements and disclosures - See more at: http://accounting-simplified.com/audit/introduction/audit-assertions.
(2) Management must designate which of the control points that it deems to be significant or key, for testing as part of the
internal controls (IC) review. Only the significant control points are required to be tested.
(3) In addition to noting a weakness and means of remediation, the control in place and the test performed should also be
noted in this column. (This will help management enact and/or maintain the proper monitoring to identify control weaknesses
in the future.)
POTENTIAL CONTROL
PROCESS AREA OBJECTIVES/ASSERTIONS (1)
POINT(S)(2)
Cash Receipts
Cash Disbursements
Procurement
Human Resources
Payroll
Accounts Receivable
Investments
Grants
Inventory
Financial Reporting
Fixed Assets
IT
RISK SUGGESTED CONTROL TEST
IC REVIEW CONCLUSION (3)
/IDENTIFIED /WEAKNESSES/ACTION
TAKEN PROCESS NARRATIVE (SAMPLE WORDING)
Audit Program Area:
A fundamental element of internal control is the segregation of certain key duties. The basic idea
underlying segregation of duties is that no employee or group should be in a position both to
perpetrate and to conceal errors or fraud in the normal course of their duties. In general, the
principal incompatible duties to be segregated include:
- Custody of assets
- Authorization or approval of related transactions affecting those assets
- Recording or reporting of related transactions
- Execution of the transaction or transaction activity
An essential feature of segregation of duties/responsibilities within an organization is that no one

employee or group of employees has exclusive control over any transaction or group of
transactions.
Based on the above criteria, this worksheet has been designed to highlight conflicting duties
performed by one individual or group of individuals (potential lack of proper segregation of duties).
Audit teams are encouraged to use this form to help identify potentially commingled duties within
accounting processes that may constitute a control weakness.
Instructions
1) The Tester should inquire to determine which individuals are responsible for certain duties within
the company/location.
2) The matrix should be used to determine if there is potential for a segregation of duties conflict.
Use the following key to identify the potential financial risk and segregation of duties conflicts:
X - Segregation of duties conflict

H - High financial risk
M - Medium financial risk
L - Low financial risk
3) The potential issues should be investigated to ensure a mitigating control prevents the individuals
from performing both tasks.
4) If a control is not present, a conflict of duties may be present.

The concept of Segregation of Duties is to separate the major
responsibilities of authorizing transactions, custody of assets, recording of
transactions and reconciliation/verification of transactions for each business
process. From a separation of duties perspective, the completion of more
than one of these functions would be considered performing "incompatible
duties". In other words, no one employee should have responsibility to
complete two or more of these major responsibilities. However, staff
limitations may make this impractical and that is when Compensating
controls must be considered.
Instructions
We should always strive for the optimum degree of segregation of duties.
However, due to limited staff sizes at some organizations, optimum
separation of duties cannot be achieved. In those circumstances you
should at least strive for an acceptable(minimal) level of segregation of
duties which when combined with compensating controls will minimize the
impact of control deficiencies and exposure to errors or irregularities. A
minimal level of segregation of duties could possibly be achieved by
verifying that no one employee performs more than two of the "incompatible
duties". For example, an employee might perform the authorization and
verification/reconciliation functions but they should not record the
transaction or maintain custody of assets. A compensating control would be
managerial review.
AP Voucher Entry
AP Payments
Vendor (add/delete/change)
Bank Reconciliation AP
Supplier Master Maintenance
Bank Reconciliation AR
AR Cash Application
AR Clear Customer Account

Task Group Description Grp 1 2 3 4 5 6 7 8
AP Voucher Entry 1
AP Payments 2
Vendor (add/delete/change) 3
Bank Reconciliation AP 4
Supplier Master Maintenance 5
Bank Reconciliation AR 6
AR Cash Application 7
AR Clear Customer Account 8
Item Master Maintenance 9
Service Master Maintenance 10
Purchase Requisitioning 11
Release Purchase Requisition 12
Process Purchase Requisition 13
Purchase Order Entry 14
Purchasing Agreements 15
Goods Receipt on PO 16
Service Receipts Entry 17
Physical Inventory 18
Inventory Adjustments 19
Sales Agreement/Contracts 20
Ship Product 21
Customer Master Maintenance 22
Customer Master (Credit) 23
Sales Invoicing 24
Sales Invoice Release 25
Sales Order Entry 26
Sales Order Release 27
Sales Pricing Maintenance 28
Sales Rebates 29
Open/Close General Ledger 30
Post Journal Entries 31
Approve Journal Entries 32
Reconciliation of Sub-Ledgers to
General Ledger 33
Initiate Wire Transfers 34
Approve Wire Transfers 35
Approve Asset Acquisitions 36
Record Fixed Assets into Fixed
Asset System 37
Fixed Asset Reconciliation 38
Employee Master File (add/delete) 39
Process Payroll 40
Issue Payroll Checks (Manual or
Electronic) 41
Payroll Bank Reconciliations 42
Maintain Security 43
Ship Product
21
Sales Agreement/Contracts
20
Inventory Adjustments
19
Physical Inventory
18
Service Receipts Entry

17
Goods Receipt on PO
Purchasing Agreements 16
15
Purchase Order Entry
14
Process Purchase Requisition
13
Release Purchase Requisition
12
Purchase Requisitioning
11
Service Master Maintenance
10
Item Master Maintenance
9
Initiate Wire Transfers
34
Reconciliation of Sub-Ledgers
33
to General Ledger
Approve Journal Entries
32
Post Journal Entries

31
Open/Close General Ledger

30
Sales Rebates
Sales Pricing Maintenance 29
28
Sales Order Release
27
Sales Order Entry
26
Sales Invoice Release
25
Sales Invoicing
24
Customer Master (Credit)
23
Customer Master Maintenance
22
Compensating Control
Maintain Security
43
Payroll Bank Reconciliations

Issue Payroll Checks (Manual 42
41
or Electronic)
Process Payroll
40
Employee Master File
39
(add/delete)
Fixed Asset Reconciliation
38
Record Fixed Assets into Fixed
37
Asset System
Approve Asset Acquisitions
36
Approve Wire Transfers
35
Client Name
Internal Control Framework
Date Completed:
Completed By:
Reviewed By:
Question Yes No* Comments /Description
* For a “No” answer, cross-reference to either a compensating control or to audit work which has been performed
Questionnaire
or is to be performed.
To the best of my knowledge, the answers and comments noted above are accu
internal controls within this department:
Name and Title of Person Completing Form (please print) Name and Title of Department Dir
Signature of Person Completing Form Signature of Departmen
1/13/2021
Date Form Completed Date of Department Directo
Questionnaire
Employee Responsible for Task
Questionnaire
s noted above are accurate and reflect the current
this department:
Name and Title of Department Director (please print)
Signature of Department Director
Date of Department Director's Signature
Questionnaire
Control Risk Control Considerations
Assertion E,A,C,V,P Description of control Documentation W/P Ref.
Do controls meet objective?Test W/P Ref Testing exceptions noted? Yes/No
Resolution / remediation/ comments W/P Ref

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Audit Program Licensing Terms

3. While we have attempted to provide accurate information no representation is made or

6. The information contained in this document is believed to be accurate.

8 Use this information at your own risk.

Audited financial statements

Planning and Administration (PA)

Client acceptance and retention evaluation form

(Prepared on auditor’s letterhead)

Document internal control and preliminary tests

Observe physical inventories

Perform year-end audit procedures

Issue audit report

Very truly yours,

This letter correctly sets forth our understanding.

(Insert client name)

NOTES AND OBSERVATIONS:

6. There has been no:

(Name of Chief Executive Officer and Title)6

(Name of Chief Financial Officer and Title)6

NOTES AND OBSERVATIONS:

(Prepared on client’s letterhead)

We have made available to you all:

6. There has been no:

There are no:

(Name of Chief Executive Officer and Title)6

(Name of Chief Financial Officer and Title)6

NOTES AND OBSERVATIONS:

Unaudited interim information accompanies the financial statements.

The impact of a new accounting principle is not known.

There is justification for a change in accounting principles.

The work of a specialist has been used by the entity.

Management considers the decline in value of debt or equity securities to be temporary.

Receivables have been recorded in the financial statements.

Excess or obsolete inventories exist.

Deferred Tax Assets

A deferred tax asset exists at the balance-sheet date.

Tax-exempt bonds have been issued.

Tax-exempt bonds issued have retained their tax-exempt status.

Management intends to reinvest undistributed earnings of a foreign subsidiary.

We intend to reinvest the undistributed earnings of (name of foreign subsidiary).

Agreements may exist to repurchase assets previously sold.

Agreements to repurchase assets previously sold have been properly disclosed.

Pension and Postretirement Benefits

An actuary has been used to measure pension liabilities and costs.

There is involvement with a multiemployer plan.

Postretirement benefits have been eliminated.

Current employee layoffs are intended to be temporary.

There may be a loss from sales commitments.

There may be losses from purchase commitments.

d. Similar uncorrected misstatements may be aggregated.

(Prepared on client’s letterhead)

(Client’s authorized signature and title)

NOTES AND OBSERVATIONS:

STANDARD FORM TO CONFIRM ACCOUNT

Please return this form directly to our accountants:

* Ordinarily, balances are intentionally left blank if they

NOTES AND OBSERVATIONS:

We have provided to our accountants the following information as of the close of

business on _________________, 20___, regarding our deposit and loan balances

ACCOUNT NO./ DATE THROUGH WHICH

(Customer’s Authorized Signature) (Date)

(Financial Institution (Date)

our deposit and loan balances.

business on _______________, 20_, regarding our deposit and loan balances