Assess the reasonableness Long term loans and of design of system of advances are completely internal control by and accurately recorded. enquiring relevant client personnel and documenting All recorded long term loans the same (if not a and advances actually exist. documented system manual has been developed by the Long term loans and client). A walk through test advances are recorded at would be necessary to appropriate values and all confirm the understanding bad and doubtful balances as documented. Identify the have been provided for/ preventive (exercised written off. before incurrence of transactions and event) and Long term loans and detective (exercised after advances recorded are the incurrence of transactions right of the company. and event) controls established by management Long term loans and to support its assertions. advances to associated Check on sample of selected undertaking were in transactions covering the accordance with legal whole period that all requirements. preventive controls are exercised on all Long term loans and transactions. advances are presented and Check that proper all disclosures have been subsidiary records have given in accordance with been maintained and the Fourth Schedule of the entries are made in the Companies, 1984 and same on prompt and relevant IASs. consistent basis and the same is reconciled with general ledger. Check on a sample of transactions that detective controls are appropriately been exercised and in case of any detection of error/fraud, proper steps have been taken to avoid recurrence of the same. For sample of disbursements made during the year: (a) Check approval of appropriate level of management. (b) Check that the employee has fulfilled all formalities necessary before disbursement of loans. Ensure that management does not override the designed controls by: (a) Enquiring from the designated staff person (b) Remain skeptical during performing test of design and test of effective operation. Document the conclusion after performing test of controls and required level of assurance from substantive procedures. Obtain an employee-wise movement schedule of principal amount of loans and advances and interest thereon and trace the opening balances from the general ledger, subsidiary records, and last year working papers. Check casting and cross casting of the schedule. For disbursement made during the year check disbursement of funds with disbursement register and bank statement. For a sample of repayments made during the year: (a) Ensure that amount and date of repayment was accordance with repayment schedule or agreement. (b) Check receipt of funds with receipt records and bank statement. (c) Recovery of interest is in accordance with the policy (i.e along with principal or after recovery of full principal, as the case may be) Circularize confirmations to selected parties. Match replies with the amounts outstanding against each party. Obtain age analysis of long term loans and advances and perform the following: (a) Verify that loans have been classified in corrected categories. (b) Current maturity has been appropriately calculated and separately disclosed. (c) Consider the value of securities available against each loan for the purpose of calculation of provisions for doubtful loans and advances. Check subsequent recovery of loans etc. Ensure that all loans and advances to associate undertakings are granted after due compliance with legal requirements. Ensure that none of the loans and advances are impaired or the recoverable amount of a loan or advance is not less than its carrying amount. If the carrying amount of a loan/advance is more than its recoverable amount, then same should be reduced to recoverable amount recognizing the reduction as impairment loss. For items stuck-up for considerable period of time, inquire about its status from the management. Compute provisions if required and ask for management representations. Ensure that loans and advances should be measured at amortized cost using the effective interest rate method. Reperform calculation of interest income on test basis: (a) Verify rate of interest from agreement/policy. (b) Check the number of days for which interest is to be charged. Test check loan agreement and legal documents to verify the terms and conditions of the advances. Ensure that closing balances as per our working paper file are in match with general ledger. Determine that disclosures have been made in accordance with the requirements of Fourth Schedule to the companies ordinance, 1984 and the applicable IASs.