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3.

3:
Audit of
Investments
3.3: Audit Of Investments
PURPOSE :

#To ensure that purchases and disposals of


investments are properly authorized,
recorded and accounted.

#To ensure that investments are properly


valued and disclosed in the financial
statements.
Audit Procedures - Investment
Obtain a listing of investments held by the company
Existence
at the year end.

Ascertain the nature of the investments


Example: subsidiaries, associates, joint ventures, and Occurrence
other investments.

Sight minutes of the board and shareholders for


authorization for the purchase and disposal of Completeness
investments.

For quoted shares, vouch purchases / sales to brokers


buy / sell transaction notes to ensure that the number Existence
of shares bought / sold, the share price, commissions Completeness
and other charges are taken up correctly
For quoted shares, vouch to the Central Depository
Systems (CDS) statements to confirm the date and Existence
number of shares purchased / sold and the number of Completeness
shares held as at year end

For unquoted shares, vouch purchases / sales to


purchase / sale agreements for the number of shares Existence
purchased / sold, the purchases / sales price, the Completeness
terms and conditions for payments.

Ensure payments / proceeds for the purchases / sales Completeness


are properly accounted for and recorded in the books Accuracy

Ensure that dividends or interests have been received Rights/Obligations


and properly accounted for in the books Accuracy

Ensure proper disclosure of investments in the Classification /


financial statements understandability
Audit Of Loans
Audit of Loans
OBJECTIVES :

To ensure that loans are properly


recorded, represent valid claims and are
properly disclosed in the financial
statement
Audit Procedures - Loans
Obtain a list of outstanding loans, hire-purchase (HP)
and lease balances or other credit facilities, where Rights / Obligations
relevant

Obtain direct confirmation for loans or credit Completeness


facilities outstanding with the financial institutions

Review management and board minutes for approval


Rights / Obligations
to take up the loans and credit facilities

Review the loan agreements to ensure compliance


with terms and conditions with regard to repayments Existence
and interest servicing
Check drawdown of loans during the period, if the
loans are released based on periodic intervals instead Occurrence
of in a lump sum

Check repayments during the period to ensure that


Obligations
they are in accordance with the loan agreements

Check calculation of interest expense, where


Accuracy
appropriate

Ensure proper disclosure of the loans or credit Classification /


facilities in the financial statements Understandability
3.4: Audit Of
Trade
Receivables
And Payables
Audit Of Trade Receivable
PURPOSE:

To ensure that trade receivables are


properly recorded and genuine

To ascertain whether trade receivables


are recoverable
Audit Procedures Trade Receivable
Obtain an aging listing of trade receivable (debtors)
---
balances

Test balances and aging by comparing amounts to Existence /


sales invoices and the debtors subsidiary ledgers Occurrence

Select samples of trade debtors accounts for


Existence / Valuation
confirmation and reconcile differences that arise

Review aging listing for recoverability of long


outstanding balances and check payment history of Valuation / Accuracy
trade debtors for the period under review
Consider write off of bad and doubtful debts by
discussing with client on their recoverability. Note
Valuation
cases that are under legal action and ascertain the
status of the legal action

Check subsequent payments by trade debtors after


Existence
year end

Carry out a year end cut-off test to determine


whether sales and debtors balances are recorded Completeness
correctly and accurately in the proper accounting Cut-off
period

Identity and quantity trade debtors accounts with


credit balances at year-end and consider re- Valuation
classifying the credit balances to trade payables
Review credit notes issued subsequent to year-end
Valuation
and ensure that the credits given are not in respect of
Cut-off
sales transactions for the year under review

Ensure that trade receivables are properly disclosed Classification /


in the financial statements Understandability
Audit Of Trade Payables
PURPOSE:

To ensure that trade payables are


properly recorded and genuine
Audit Procedures Trade Payables
Obtain an aging listing of trade payables (creditors)
---
balances

Test balances and aging by comparing amounts to Existence


suppliers invoices, statements and creditors ledgers Occurance

Select samples of trade creditors for confirmation and


Existence
reconcile differences that arise

Check subsequent payments by creditors after year


Existence
end
Carry out a year end cut-off test to determine
whether purchases and creditors balances are
Completeness
recorded correctly and accurately in the proper
accounting period

Review suppliers invoices, credit notes and debit Completeness


notes received after year end for omission of Valuation
liabilities or over-statement of purchases, where Rights/Obligations
relevant Cut-off

Identify and quantity trade creditors accounts with


debit balances at year-end and consider reclassifying Valuation
the debit balances to trade receivables

Ensure that trade payables are properly disclosed in Classification /


the financial statements Understandability
3.5:
Audit of
Inventories
Audit Of Inventories
PURPOSE :

To ensure that inventories and work in progress


are stated at the lower of cost and net reliable
value

To ensure that the basis of evaluation for


inventories properly and consistently applied

To ascertain physical existence of inventories


balances as at year end and ensure that
inventories are properly disclosed in the
financial statement
Audit Procedures - Inventories
Arrange with client to attend physical court of
Existence
inventories, if the inventory balance is material

Obtain an aging listing of inventories as at year end,


Existence
showing quantities and valuation. Check against
Accuracy
inventory cards, ledgers and ensure correct casting

Check the bases of valuation of inventories as FIFO, Valuation


standard cost for raw materials. Accuracy
Where standard casting is used, review the variance
accounts to ascertain the reasons for unusual Valuation
variances

Review write-down for obsolete, slow moving and


damaged inventories, based on physical court
Valuation
observations and from review of the aging listing
inventories

Check reconciliation of inventory control accounts


with inventory subsidiary accounts at the date of
Existence
physical count and ate year end, ensuring differences
Valuation
between the physical quantities and the book
balances have properly accounted for
Carry out a net realizable value (NRV) test to ensure
that inventories are stated at the lower of cost or NRV Valuation
for value

Perform a cut-off test for purchases and sales by


reviewing purchase orders, goods received notes,
Completeness
sales invoices, debit notes, credit notes and other
Cut-off
relevant documents which control the movement of
inventories

Ensure that inventories and work in progress are


Classification
properly categorized, described in the financial
Understandability
statements