Presentation 3 - Audit Program & Procedure

1. Audit Program & Procedures Prepared by Marzanur Rahman

2. Audit program Audit program are lists of audit procedures to be performed by audit staff in order to obtain sufficient appropriate evidence.

3. Purpose of Audit Programs A set of instructions to the audit team. Assist with planning and performance of the audit. A means to control and record the proper execution of the audit work and also to review the audit work. A record of the audit procedures to be adopted, the audit objectives, timing, sample size and basis of selection of each criteria. Audit evidence to support the auditor opinion.

4. Areas Covered by Audit Program General Information Existence Valuation Completeness Cut-off Test Presentation and Disclosure Conclusion

5. Format of audit program Name of Client : Prepared by: Date: Ref : Year end: Reviewed by: Date: Particulars Test required Y/N Result satisfactory Y/N WPRef . Comments Initial & Date

6. Audit Program – Tangible Fixed Assets General Agree the opening balance Prepare lead schedule and reconcile to nominal ledger Examine material journal Carryout analytical procedure (a) comparison of the current figures with prior periods; (b) review of key ratios or other performance indicators. Review large or unusual transaction. Existence Carry out physical inspection Ownership Confirm title of freehold property Inspect property leases or obtain direct communication from bank or other custody

7. Audit Program – Tangible Fixed Assets Depreciation Compare bases and rates depreciation Review the appropriateness of methods Check calculation Ensure that no assets have been depreciated by more than cost Valuation and disclosure Vouch addition to purchase invoices Vouch disposal to available evidence Consider the indicator of impairment Check consistent application of revaluation for a class of assets Check addition or revaluation treatment of investment property Conclusion Consider whether there are any items which need to be included a letter of representation

8. Audit Program – Investment General Agree the opening balance Prepare lead schedule and reconcile to nominal ledger Examine material journal Carryout analytical procedure (a) comparison of the current figures with prior periods; (b) review of key ratios or other performance indicators. Review large or unusual transaction. Existence Carry out physical inspection Ownership Confirm title of freehold property Inspect property leases or obtain direct communication from bank or other custody

9. Audit Program – Investment Income Check the income from investment and approved income have been correctly accounted for Presentation and disclosure Consider the nature of assets held Decide whether the investments have been correctly classified and their treatment is consistent Conclusion Consider whether there are any items which need to be included a letter of representation

10. Audit Program – Stock and WIP General Same as before Ownership Enquire if any of the stock is held on behalf of third parties and ensure that such items are excluded from stock. Where stock is held by third parties on behalf of the company, obtain certificates where amounts are material. Existence Complete the stock take attendance program Trace all items selected at the stock take to the final stock sheets, and internal stock records Obtain explanations for any differences

11. Audit Program – Stock and WIP Valuation Test the additions and extensions Ascertain the method used for valuing stock and consider whether: (a) it has been correctly applied; (b) it is an acceptable basis of valuation under applicable accounting standards; (c) it is consistent with previous years and with the company's accounting policy. Provisions Obtain details of the basis for making provisions and determine if it is both adequate and consistent Review the stock sheets and ensure that any items identified as damaged, slow moving or obsolete have been correctly written down Review all items of stock and work in progress and consider whether any further provision is necessary.

12. Audit Program – Stock and WIP Cut-off Review the results of the tests on cut-off carried out on debtors and creditors Presentation and disclosure Ensure that payments on account are properly presented in accordance with applicable accounting standards Conclusion Consider whether there are any items which need to be included a letter of representation

13. Audit Program – Debtors & Prepayments Cost/Existence Obtain or prepare an aging schedule Agree the aging schedule balances to the control account. Obtain explanations for all material adjustments Perform a debtors circularization Where circularization has not been carried out select a sample of trade debtors or where unsatisfactory results are obtained carry out alternative procedures. examine the ledger for cash after date; for unpaid items inspect proof of delivery or despatch ; review correspondence files for items in to determine whether any disputes exist; Check transaction history from key customers.

14. Audit Program – Debtors & Prepayments Valuation Review ledger accounts and obtain a list of any debts with balances Cut-off Review credit notes after the year end and consider whether these have been accounted for in the correct period If the company has despatch records, examine sales and despatch records before and after the year end Presentation and disclosure Ensure that there is evidence on the file to support the disclosures made such as long term debtors. Review transactions and balances with directors and ensure they are properly presented as related party transactions

15. Audit Program – Bank Balances & Cash Valuation and Existence Obtain bank letter for all bank accounts open at any time during the year. Obtain or prepare bank reconciliations for all accounts and verify Ensure that bank balances and overdrafts are only netted off where a formal right of set-off exists For businesses receiving cash income, ensure unbanked takings before and after the year-end have been accounted for in the correct period Obtain certificates for all cash balances not counted. Conduct year end cash counting Presentation and disclosure Ensure that there is evidence on the file to support all disclosures made Review the bank letter and ensure that all necessary disclosures have been made.

16. Audit Program – Creditors & Accruals Existence Obtain or prepare a list of trade creditor balances Agree the list to the control account Obtain explanations for all material adjustments to the control account. Completeness List all debit balances over Tk _____ and obtain explanations. Ensure they are correctly treated in the accounts Perform a creditors circularization Where a circularization is not carried out, or the results are unsatisfactory, test creditors for completeness as follows: obtain the year end creditors listing; compare to prior year to identify obvious omissions; review purchase day book during the year and payments after the end to identify main suppliers; enquire to major suppliers not in the list.

17. Audit Program – Creditors & Accruals Cut-off If the company retains goods received records, examine the goods received/ purchased records immediately before and after the year end Presentation and disclosure Ensure that there is evidence on the file to support all disclosures made.

18. Audit Program – Long Term Loans Existence Obtain third party verification for all material loans. Review loan agreements and consider the implications of any breach of covenants Calculate the apportionment between long and short- term loans. Presentation and disclosure Ensure that there is evidence on the file to support all disclosures made.

19. Audit Program – Liability Charge Obligation Review the obligation of recognizing labiality. Review the policy and practice of the company Review the customer claim procedure. Review the litigation process Completeness the previous year’s provisions and ingent liabilities; items recorded on the bank certificate; minutes of meetings; major contracts; correspondence Presentation and disclosure Ensure that there is evidence on the file to support all disclosures made.

20. Capital Reserve & Statutory Records Completeness Check all statuary records ; Any changes in director and their interest; minutes of meetings; Director report; Share register Share issue procedure Dividend declaration and dividend distribution record Presentation and disclosure Ensure that there is evidence on the file to support all disclosures made.

21. Audit program - Profit and Loss Account Occurrence Check the transaction occurred are related to the entity Completeness All transaction are supposed to be recorded have been recognized in FS Accuracy Transactions have been recorded accurately at their appropriate amounts Cut off Transactions have been recognized in the correct accounting periods. Classification Transactions have been classified and presented fairly in the financial statements. Presentation and disclosure Ensure that there is evidence on the file to support all disclosures made.

22. Audit Program – Taxation Ensure profit before tax used in the computation agrees to draft profit and loss account. Verify movements on CT account to Tax Returns. Recalculate the amount paid as advance income tax; Obtain schedule of Tax Deduction at Source (TDS) and check its accounting in the books; Observe Treasury Challan for advance income tax; Observe certificate for TDS; Recalculate the provision for taxation and compare it with the records of the company; Identify the temporary differences for deferred tax calculation; Review filing of relevant return to NBR for Income Tax;

23. Audit Program –VAT Review VAT registration Certificate. Review VAT registration according to the nature of business Ensure VAT is recorded on applicable transaction as per VAT Act 1991. Verify the VAT calculation. Verify VAT current account transaction; Observe Treasury Challan VAT; Observe monthly VAT return

24. Audit Program – Related Party Transactions General Checking review prior year working papers for names of known related parties; review the company's procedures for identification of related parties; enquire as to the affiliation of those charged with governance; review shareholder records to determine the names of principal shareholders; review minutes of the meetings of shareholders; enquire of other auditors currently involved in the audit, or predecessor auditors, as to their knowledge of additional related parties; review the company's tax returns and other information supplied to the tax authorities; Enquire as to the interest of the directors in other companies .

25. Audit Program – Related Party Transactions Transactions Checking Review the accounting records for large or unusual transactions or balances. For example: transactions with abnormal terms; transactions that appear to lack a logical business reason; transactions processed or approved in a non-routine manner; high volume or significant transactions with certain customers or suppliers as compared with others; Disclosure Obtain sufficient appropriate audit evidence as to whether identified related party transactions have been properly recorded and disclosed. Obtain a written representation from management concerning: the completeness of information provided, and the adequacy of related party disclosures in the financial statements

26. Calling Over Sheet And Typing Instructions Check and record call and cast of accounting figure presented in FS

27. Opening Balance and Comparative Checklist This checklist should be used in circumstances where an audit is being undertaken for the first time . This could either be because the client has been taken over from another firm or because the previous period's accounts were unaudited . Planning Part Was there an audit in the previous period? Confirm that the prior period's closing balances have been correctly brought forward to the current period. Summarize the main balance sheet opening balances and the main accounting policies. Consider the risk of material misstatement in the current period's accounts due to errors in the brought forward figures. Detail what steps will be taken to mitigate those risks. Have the current period's accounting policies been correctly applied in respect of the opening balances?

28. Opening Balance and Comparative Checklist This checklist should be used in circumstances where an audit is being undertaken for the first time . This could either be because the client has been taken over from another firm or because the previous period's accounts were unaudited . Completion Part Have the accounting policies been consistently applied? Are the results and ratios consistent and in accordance with the audit evidence obtained? Were the results of the audit work undertaken on opening balances and comparatives satisfactory? Have management been informed where there is a misstatement of the opening balances that could materially affect the current period's figures?

29. Post Balance Sheet Events Assess whether the initial materiality, risk assessment or extent of reliance on controls should be revised in view of the audit evidence obtained. Review that nothing has occurred since the year end which should be disclosed Discuss with management and ensure that all material items have been identified Consider whether: all events up to the date of the auditor's report that may require adjustment of, or disclosure in, the financial statements have been identified; there are any indications that the going concern basis may not be appropriate; matters have been properly presented and disclosed in the accounts; there are any points which need to be included in a letter of representation

30. Going Concern Concept An entity prepares financial statements on a going concern basis when the entity as continuing in business for the foreseeable future. The auditor’s responsibility is to obtain sufficient appropriate audit evidence about the appropriateness of management’s use of the going concern assumption Following situation can be happen regarding going concern assumption: use of the going concern assumption is appropriate but a material uncertainty exists (include matter of emphasis paragraph in audit report) use of the going concern assumption is inappropriate (give adverse opinion)

31. Going Concern Checklist Financial Issues Does the company have net liabilities or net current liabilities? Has the company defaulted on any loan agreement or breached any covenant? Does the company have serious liquidity or cash flow problems? Has the company sold a substantial number of fixed assets which it is not intending to replace? Has the company experienced problems in obtaining and/or retaining normal terms of trade credit by suppliers? Is the company experiencing problems paying debts as they fall due?

32. Going Concern Checklist Operational Issues Have there been any fundamental changes in the market or technology to which the entity is unable to adapt adequately? Has the company lost any key management or staff? Is the company experiencing any labour difficulties? Is the company relying on a few product lines and operating in a depressed market? Other Issues Is the company involved in any major litigation in which an adverse judgment could imperil the entity's continued existence? Are there any other factors which could adversely affect the appropriateness of the going concern basis?

33. Post Balance Sheet Events General Agree the opening balance Prepare lead schedule and reconcile to nominal ledger Examine material journal Carryout analytical procedure (a) comparison of the current figures with prior periods; (b) review of key ratios or other performance indicators. Review large or unusual transaction. Existence Carry out physical inspection Ownership Confirm title of freehold property Inspect property leases or obtain direct communication from bank or other custody

34. Post Balance Sheet Events General Agree the opening balance Prepare lead schedule and reconcile to nominal ledger Examine material journal Carryout analytical procedure (a) comparison of the current figures with prior periods; (b) review of key ratios or other performance indicators. Review large or unusual transaction. Existence Carry out physical inspection Ownership Confirm title of freehold property Inspect property leases or obtain direct communication from bank or other custody

35. Post Balance Sheet Events General Agree the opening balance Prepare lead schedule and reconcile to nominal ledger Examine material journal Carryout analytical procedure (a) comparison of the current figures with prior periods; (b) review of key ratios or other performance indicators. Review large or unusual transaction. Existence Carry out physical inspection Ownership Confirm title of freehold property Inspect property leases or obtain direct communication from bank or other custody

36. Post Balance Sheet Events General Agree the opening balance Prepare lead schedule and reconcile to nominal ledger Examine material journal Carryout analytical procedure (a) comparison of the current figures with prior periods; (b) review of key ratios or other performance indicators. Review large or unusual transaction. Existence Carry out physical inspection Ownership Confirm title of freehold property Inspect property leases or obtain direct communication from bank or other custody

37. Permanent Audit File Index General Information Background Information Details of bankers and professional advisors Know Your Client Checklist Register of laws and regulations Details of related parties Significant accounting policies Copy of current detailed risk assessment

38. Permanent Audit File Index Statutory information List of shareholders Details of mortgages/charges Directors' interests in shares and debentures Copy annual return Memorandum and Articles of Association Taxation (If no separate tax permanent file) Tax certificates Copy of Tax Return Advance Corporation Tax details

39. Permanent Audit File Index Assets Details of freehold/leasehold properties Details of intangible assets Investments in subsidiaries and associated undertakings Details of professional valuations Details of insurance values and cover Contracts and agreements Details of contracts and agreements with index Details of share options Bank overdraft or loan facilities, security and covenants Accounts Signed copies of full accounts Company accounts disclosure checklist

40. Thank You