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SUBSTANTIVE AUDIT FOR ASSETS

AUDIT OBJECTIVE: To ascertain that property and equipment physically exists and owned by; Acquisitions and disposals are authorized; completely recorded; properly accumulated in the underlying financial records. 1. CASH ON HAND AND REVOLVING FUNDS  Perform cash counts and determine accountabilities.  Work-forward or work-back cash count figures to the balances in the general ledger. Investigate differences.  Obtain a copy of the Daily Cash Position Report as at December 31, 2010.  Trace subsequent deposits of the cash on hand as at December 31, 2010. 2. COCI  Ask Schedule/Analyses  Trace the COCI to the deposit slips on the next banking day. 3. CASH IN BANKS  Prepare confirmation letters for all bank accounts. Ensure that these are sent to the banks, or personally confirm them, if possible.  Obtain bank reconciliation statements of the accounts. Match figures with trial balance. Investigate differences.  Obtain copies of passbooks and bank statements as at December 31, 2004. Match with bank recon statements figures.  Examine reconciling entries in the bank reconciliation statements.  Trace outstanding checks to their subsequent clearing with the bank (See passbook s entries from January 1 15, 2011) and see Check Voucher.  Trace stale checks to their original entries (Check Voucher); consider reclassifying back to payables.  Trace deposit in transit to Deposit Slips on the first week of January 2011. 4. LOANS RECEIVABLE  Ask List of Outstanding Loan Balances and compare to the Ledger/FS  Compare balances in List of Outstanding Loan Balances to the balance per system.  Copy of Statement of Account for samples and compare it to the List.  Examine collections of samples after December 2010.  Ask Unearned Interest Discount Ledger and compare it to GL and FS.  Inquire policy on determination and amortization of UID.  Inquire policy on recognition of service charge.  Ask computation for General Loan Loss Provision and Specific Loan Loss Provision.  Ask listings of accounts written-off.  Ask computation and Analyses of DOSRI loans. Determine if it complies with the ceiling.  Prepare confirmation letters for sampled loans receivables. Ensure that these are sent to the borrower, or personally confirm them, if possible. 5. FINANCIAL ASSETS  Obtain Schedule/Analyses  Agree details to supporting documentation (Certificate of Investments)  Confirm investment held by third party custodians  For investment purchases during the year:

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i. Agree details to supporting documentation and review appropriateness of method of accounting for the purchase ii. Test the mathematical accuracy of the recorded cost iii. Confirm details of transactions with purchaser or agent or check the Board resolution. INVENTORIES  Obtain the Inventory listings as at December 31, 2004.  Obtain the reconciliation statements between stock card records and the GL. Investigate reconciling items.  Trace your count samples to the final listings.  Test-trace work forward or work-backward analyses of the Warehouse by obtaining at least 20 samples of your test-counted items.  Determine proper cut-off of documents by reference to the last RR used, last MCT used, etc.  Determine the amount of reported obsolete items for possible provision of allowance for obsolescence. PREPAYMENTS/DEFERRED CHARGES  Obtain schedules of the prepayments.  Ask complete descriptions of the prepayment  Additions on prepayment should be traced to the Contracts/Agreements.  Test-compute accruals. Determine possible adjusting entries.  Deferred debits: Obtain details and analyze the accounts. Be wary of expenses which should be recorded during the year but which are just deferred to increase net income Real and Other Properties Acquired (ROPA)  Ask schedule/appraisal and determine if there are ROPA which Appraised value is lower than Book value. Consider allowance for impairment.  Take note the date of appraisal. Should every other year.  Check how the book value is computed.  Check whichever of the following documents to determine ownership: i. Date of the entry of judgment for judicial foreclosure Title is in the name of the Bank ii. Notarized of Sheriff Certificate of sale for extra-judicial foreclosure. iii. Notarized Dacion en pago / Deed of Dacion for dation in payment iv. Voluntary Offer to Sell VOS  Reclass to Items in Litigation those properties having no evidence of ownership.  Ask / confirm the physical existence of the property and consider possible impairment. SALES CONTRACT RECEIVABLE  Ask Schedule/Analyses of SCR  Ask the sales contract between the Bank and the buyer.  Check computation effective interest computation.  Determine if the capital gain tax is paid.  If there is no contract all payments is part of Liability Account  In case of buy-back, even if there s no contract but if the 1 year term of redemption is already expired, the payment is deemed SCR.  For each property, obtain copy of real property tax declaration for the year. PROPERTY AND EQUIPMENT  Obtain property and equipment detailed records (Lapsing Schedule and Reconciliation/Analysis), i. agree opening balances to the prior period ii. reconcile to the general ledger iii. test mathematical accuracy

 Perform verification procedures over the new acquisitions by: i. Test-verify purchase documents of the assets - Agree details to supporting documentation (e.g. contracts, invoices, receiving reports) ii. Agree payment to cash records (trace to check vouchers) iii. Physically inspect the asset (performing ocular inspections and count) iv. Test mathematical accuracy of the calculation of the cost (purchase price plus direct cost) and the depreciation charge for the period since the acquisition date. v. Compare the estimated useful lives of the asset to the Operations Manual.  Test-check the propriety of capitalized Construction-in-Progress during the year by tracing to the journal entries and examining the supporting documents.  For disposals throughout the period: i. Verify disposals by agreeing details to supporting documentation (sales records, etc.) ii. Agree receipt to cash records (receipts). iii. Test mathematical accuracy of the consideration, the depreciation charge up to the date of disposal and of the associated gain or loss on disposal iv. Trace gain or loss to appropriate entries in the general ledger  Review minutes of board of directors meetings, budgets or client business plans and verify that any noted asset acquisitions or disposal have been properly recorded  For selected items from the property and equipment listing acquired in the prior years: i. Physically inspect the asset ii. Trace to the depreciation transaction listing  Trace selected leases entered into during the period, (including changes, revisions, extensions and renewals of existing leases)  Obtain analysis of repairs and maintenance that was capitalized. Examine supporting documents to determine whether it should be capitalized.  Determine by reviewing Loan Agreements whether the asset is pledged as collateral.  For property and equipment revaluations undertaken during the period, review the basis and supporting documentation, determine the reasonableness of the data provided to appraisers, test the mathematical accuracy of the computations and trace postings to the general ledger.  Identify fully depreciated assets. Obtain assurance that it is still being utilized. Consider disclosure of the assets fully depreciated.  Assets which are no longer used should be removed/derecognized from the account.  Determine whether depreciation practices are consistent with prior years (as to useful life, salvage value, procedures of depreciation). Test calculations to the extent considered necessary and trace provision/expense for depreciation to the Ledger.  Determine if real property tax for the year is already paid obtain copies of receipt or tax declaration.  List down management review points.  Clear all review points.

SUBSTANTIVE AUDIT FOR LIABILITIES


AUDIT OBJECTIVE: To ascertain those liabilities that has been incurred and has not been settled; completely recorded; properly accumulated in the underlying financial records. 1. ACCOUNTS PAYABLE  Ask analyses  For additions, trace to invoices/supporting documents.  For payments, check cancellation of supporting documents, and CV, and Official Receipt (OR) from supplier or a copy of deposit slip in the name of the supplier  Confirmations from suppliers are recommended.  For no movement, ask the reason. 2. SAVINGS DEPOSIT  Source documents are tickets, Deposit and Withdrawal slips.  Ask print-out of Balances of Savings and Time Deposits and compare to the GL/FS  Ask Quarterly Interest Listing and compare to GL/FS. The balance of Accrued Interest Payable at the end of the quarter and/or year should be zero.  Sample of computation of corresponding interest expense to determine if recorded ones are correct and that the probability of the accuracy of the accrued interest expense is reasonable.  Confirmations to some of the depositors are a must to insure that balances reflected in the ledgers are correct.  Examine samples of debits and credits to Savings Deposit by tracing it to the deposit/withdrawal slips. 3. TIME DEPOSIT  Source document: when debited is original Certificate of Time Deposit (CTD), with cancellation or paid indication; when credited, duplicate of CTD.  These certificates can be monitored through its number order for they are prenumbered.  Sample computation as to its corresponding interest expense to be assured that what is recorded is accurate, and to know how much should be accrued.  Completeness as to signatories should also be checked and determine if the signatories really are the authorized ones as per policy.  A confirmation to depositors is a good way to test balances in the ledger. 4. ACCRUED INTEREST PAYABLE  When debited, source document are schedule of monthly/quarterly amortization/ interest computation of borrowings and deposit liabilities and Official Receipt (OR)  when credited, the same schedule as above, copy of check, voucher , O.R or deposit slip.  sample recomputation for assurance of correctness is a must.  check complete signatories , verify if amount is reasonable, and has proper authorization  Compare per General Ledger (GL) and per SL 5. BILLS PAYABLE  Verify authencity of the availment of such through the BOD resolution.  Obtain schedule of Bills Payable, list of loans rediscounted together with the titles or collaterals, and verify if these are matched  Loans agreement should also be checked to determine the collateral,  Check schedule of amortization if the mode of payments has been followed

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 Test of mathematical accuracy is a must, and trace the individual and total balances to subsidiary and general ledger  Bank confirmations is must  For every payment, check the voucher, copy of check or deposit slips, and the signatories RETIREMENT BENEFIT OBLIGATION  Inquire the existence of retirement plan.  Review plan agreement and actuarial assumptions.  Obtain copies of Actuarial Valuation Report and note items requiring disclosures.bbb  Determine the employee covered and accounting and funding policies.  Ascertain whether appropriate retirement benefit expense has been provided for the year. Check computations on retirement benefit expense for the year.  Request confirmation from Trustee. Review reconciliation difference.  Ascertain if necessary waiver for tax-exempt certificate has been received and obtain copy for our files. PROFESSIONAL FEES  Examine agreements/engagement letters with professionals.  Perform independent computation of accrual fees  For payments, examine CV or OR CAPITAL STOCK  For additions, examine the Stock Certificate Books UNDIVIDED PROFIT  Ask a copy of the UP analysis  Reconcile the beginning balance per book and beginning balance per Audited FS. Determine the exact account and its corresponding amount. PAYROLL  Examine the payroll summary determine if the payee acknowledged the receipt and compare it to the GL/FS  Examine CV and compare it to the net pay per Payroll Summary  Ask copies of SSS, PHIC, HDMF remittances and compare it to the expense reflected in the GL/FS

Important Notes: 1. Bank should have New Accounts Information Sheet (NAIS). Upon opening of deposit, Valid ID should be presented -Xerox copy to be kept by the Bank. In compliance with AMLA. 2. Prepaid interest expense on Time Deposits is not allowed, unless there is a policy on it approved by the BOD. 3. Representation expense 1% of gross receipts 4. Miscellaneous expense 10% of total expenses excluding miscellaneous. 5. Donations evidenced by Certificate of Donation for NGO, 100% deductible; for Non-stock Corp., 5% of taxable income excluding the donation. 6.