SAMPLE AUDIT PROGRAMS

CASH
Risks
Cash transactions may not be recorded accurately
Cash may not exist
Steps
1. Confirm selecte !"nk "cco#nts "n speci"l "rr"n$ements
Select bank accounts for confirmation in order to obtain a moderate to low level of
assurance that the aforementioned audit objectives are achieved. Bank
confirmations should be sent to all banking relationships to identify accounts not
included in the general ledger.
Confirmation requests should be sent under our control and, second requests and,
where warranted, third requests should be mailed when responses to confirmation
requests have not been received within a reasonable time.
Consider sending a special inquiry letter to ascertain the existence of special
arrangements or restrictions, for example, compensating balance arrangements,
security arrangements, written guarantees.
%. Re&ie' confirm"tion replies
or confirmations returned!
a" agree account information and account balance to comparative summary#
b" investigate all discrepancies reported or questions raised in review and determine
whether any adjustments are necessary# and
c" assess impact of special arrangements or restrictions identified and determine
whether disclosure is appropriate.
(. Test "cco#nts ')ere t)ere is no confirm"tion
$n the unusual situation where we do not receive a bank confirmation and are willing
to forego the receipt of the bank confirmation, consider performing the following
procedures to obtain a high level of assurance that the aforementioned audit
objectives are achieved!
a" obtain subsequent month bank statement, bank reconciliation and supporting
documentation. Consider obtaining information directly from the bank#
b" test the mathematical accuracy of the bank reconciliation# %accuracy"
c" trace outstanding items listed on the bank reconciliation to the subsequent
month&s bank statement and for those not traced, trace to the cash disbursements
records for the period prior to the balance sheet date# %accuracy and
existence'occurrence"
d" trace deposits in transit listed on the bank reconciliation to the subsequent
month&s bank statement and for those not traced, trace to the cash receipts records
for the period prior to the balance sheet date# %accuracy and existence'occurrence"
SAMPLE AUDIT PROGRAMS
e" obtain explanation for large, unusual reconciling items and trace to supporting
documentation and'or entries in the cash records, as appropriate# %accuracy and
existence'occurrence"
f" review the date the above items cleared the bank or were recorded in the client&s
books to ensure appropriate recording period. (race to supporting documentation as
necessary# and %cut)off"
g" investigate items such as, long outstanding items, dishonoured checks and
significant adjustments in the subsequent month, and record adjustments as
necessary. %accuracy and existence'occurrence"
*. Test !"nk reconcili"tions
(est bank reconciliation in order to obtain a moderate to low level of assurance that
the aforementioned audit objectives are achieved by performing the following!
a"test the mathematical accuracy of the reconciliation# %accuracy"
b" trace book balances on the client&s bank reconciliation to the comparative
summary# %accuracy"
c" trace bank balances on the client&s bank reconciliation to the bank statement#
%accuracy"
d" test reconciling items on the bank reconciliation by performing the following!
i" obtain subsequent month bank statement and supporting documentation.
Consider obtaining information directly from the bank#
ii" trace outstanding items listed on the bank reconciliation to the subsequent
month&s bank statement and for those not traced, trace to the cash
disbursements records for the period prior to the balance sheet date#
%accuracy and existence'occurrence"
iii" trace deposits in transit listed on the bank reconciliation to the subsequent
month&s bank statement and for those not traced, trace to the cash receipts
records for the period prior to the balance sheet date# %accuracy and
existence'occurrence"
iv" obtain explanation for large, unusual reconciling items and trace to supporting
documentation and'or entries in the cash records, as appropriate# %accuracy
and existence'occurrence"
v" review the date the above items cleared the bank or were recorded in the
client&s books to ensure appropriate recording period. (race to supporting
documentation as necessary# and %cut)off"
vi" investigate items such as, long outstanding items, dishonored checks and
significant adjustments in the subsequent month, and record adjustments as
necessary %accuracy and existence'occurrence".
e" review client&s bank reconciliation for review and approval by appropriate
management and timely completion of reconciliation.
SAMPLE AUDIT PROGRAMS
ACCOU+T RECEI,A-LE
Risks
(he accounts receivable listing or individual balances may be inaccurate
*ccounts receivable balances may not exist
*ccounts receivable may not be collectible
Bad debts write)offs may not be valid
Sales transactions may be processed in the wrong period
Steps
1. A$ree " et"ile listin$ of "cco#nts recei&"!le to t)e s#mm"r.
+btain a detailed listing of accounts receivable balances %aged by customer, if possible"
and!
a" trace totals to the comparative summary of accounts receivable balances#
b" select reconciling items in order to obtain a moderate to low level of assurance that
accuracy is achieved and
i" trace these items to supporting documentation# and
ii" determine whether the results of the client&s investigations have been reviewed
and approved by a responsible official#
c" test, to an extent to obtain a moderate to low level of assurance, the mathematical
accuracy of the detailed listing# and
d" if appropriate, examine support for any significant adjustments made throughout
the year in reconciling detailed accounts receivable records with the account%s" in the
general ledger.
%. Positi&el. confirm selecte "cco#nts recei&"!le !"l"nces
Select customers& account from the detail accounts receivable listing for positive
confirmation in order to obtain a moderate to low level of assurance that the
aforementioned audit objectives are achieved. ,erform the following!
a" send positive confirmation requests under our control. -here appropriate, send
itemi.ed statements to customers to facilitate responses. Second requests and,
where warranted, third requests should be mailed when responses to positive
confirmation requests have not been received within a reasonable time. -hen
management requests us not to confirm certain accounts receivable balances,
consider whether there are valid grounds for such a request. Before accepting a
refusal as justified, examine any available evidence to support management&s
explanations.
b" summari.e confirmation coverage.
(. Re&ie' confirm"tion replies
or confirmations returned!
SAMPLE AUDIT PROGRAMS
a" agree account information and account balance to detail listing#
b" reconcile the account detail between the returned confirmation and the detail listing,
where applicable# and
c" investigate all reconciling items and determine whether any adjustments are
necessary.
*. Test "cco#nts ')ere t)ere is no confirm"tion
-hen confirmation is not carried out, or where it is not possible to confirm a selected
amount %including where confirmation requests are unanswered", select customer
accounts from the detail accounts receivable listing for verification and perform the steps
outlined below in order to obtain a moderate to low level of assurance that the
aforementioned audit objectives are achieved.
a" compare subsequent remittances credited to accounts with remittance advices or
other receipts %e.g. deposit slips and bank statement" and ascertain that payments
relate to the account balances#
b" examine documentation such as shipping documents, copies of sales invoices,
customer sales orders, and other relevant correspondence supporting the unpaid
portion of the account balances. Coordinate this test with the review of the
collectibility of overdue accounts# and
c" consider whether it is necessary to verify further the existence of the customer.
/. Assess "e0#"c. of "llo'"nce for o#!tf#l "cco#nts
(o an extent based upon materiality and inherent risk, assess the adequacy of allowance
for doubtful accounts by performing the following procedures!
a" obtain a list of accounts for which an allowance has been established. /eview and
test the process used by management to develop their estimate of collectibility#
b" where provisions are made by the use of formulae based on the aged listing,
determine by reference to the details in our notes of the client&s procedures whether
the basis is!
i" consistent with prior years#
ii" appropriate to the circumstances of the business# and
iii" in accordance with the accounting policy#
d" determine the effect, if any, of the client&s policies and experiences regarding the
timing of the passage of title, sales returns and allowances where right of return
exists, and bill and hold situations# and
e" discuss collectibility with management and review other documentation supporting
collectibility as necessary.
SAMPLE AUDIT PROGRAMS
1. Re&ie' !" e!t 'riteoffs
/eview, in order to obtain a moderate to low level of assurance that valuation is
achieved, bad debt writeoffs by performing the following!
a" consider the reasonableness of bad debt expense in light of the levels of bad debt
write)offs compared with prior years# and
b" examine documentation relating to write)offs during the period and determine
whether the write)offs were properly authori.ed.
2. Test s"les3"cco#nts recei&"!le c#toff
*ccounts receivable cutoff testing is typically performed in conjunction with testing
inventory cutoff and may be tested in the $nventory audit area. $f cutoff is tested in the
*ccounts receivable audit area, perform the following!
Select sales and credit memoranda to obtain a moderate to low level of assurance that
cutoff is achieved by reviewing the cutoff at the time of inventory taking and at year)end
%if different" and performing the following!
a" for selected sales for periods before and after the cutoff date, examine the related
records of goods shipped and services performed to determine that the sales
invoices are recorded as sales in the proper period#
b" for selected credit %debit" memoranda for periods before and after the cutoff date,
examine the related records of returns and claims from customers to determine that
the credit %debit" memoranda are recorded in the proper period#
c" determine whether there are unusually high volumes of returned goods after year)
end# and
d" consider unusual fluctuations in sales or return patterns before and after year)end
and, if present, review for possible cutoff errors.
I+,E+TOR4
Risks
$nventory records may not be complete
$nventory transactions may be processed in the wrong period
$nventory items may not exist
$nventory carrying values may not be reali.able
Steps
1. O!ser&e p).sic"l in&entor.
(o an extent based on materiality and inherent risk, perform the following!
a" inspect the premises to determine whether!
SAMPLE AUDIT PROGRAMS
i" the arrangement of inventory is such that an accurate count is possible.
ii" the inventory is in good condition with adequate storage space, and whether
items are properly packed or binned in a convenient manner for counting.
iii" scrap, obsolete, and damaged goods are adequately identified and
segregated.
iv" inventory owned by third parties is adequately identified and segregated.
v" inventories appear to be adequately safeguarded against access by
unauthori.ed persons and protected against deterioration.
b" in observing physical inventory counts, determine whether!
i" the counts are carried out under proper supervision. 0etermine whether this
official is independent of the custody and recording of inventory. +bserve
whether persons supervising the inventory make test counts in all areas and
review all areas where inventory are kept to ensure that they have all been
counted and the counts are recorded.
ii" appropriate procedures are employed to control inventory movements %e.g.,
transfers, stock picking, etc." during the count.
iii" quantities and descriptions are properly entered on the inventory tags or
sheets.
iv" the methods used to determine quantities are reasonably accurate.
v" there are adequate procedures for determining quantities of goods not
susceptible to direct physical counting %e.g., screws, nails".
vi" count totals are adequately checked by persons other than the original
counters.
vii" there are adequate procedures to ensure that all inventory %other than that on
the company&s premises owned by others" is counted and that no inventory is
counted more than once.
viii" inventory on the company&s premises owned by others has been appropriately
identified and counted.
ix" tags or count sheets are signed by individuals carrying out the count, or other
suitable means of identifying individuals carrying out the count have been
established, such as assigning tags or count sheets to count teams.
c" test the counting of inventory items by selecting items from the inventory tags or
sheets and perform an independent count. ,erform other counts of inventories and
compare the results with those recorded on the inventory tags or sheets by company
personnel. ollow up any differences noted in the counts. /ecord selected items
counted for subsequent comparison with priced inventory listings.
%1xistence'+ccurrence, *ccuracy"
d" determine that procedures for accounting for all inventory tags and count sheets are
followed and that all such tags and sheets have been accounted for, including used
and unused tags and sheets, and that they are secured against alteration. +btain
details of records in order to test later for suppression, manipulation, addition or
substitution of records after the physical inventory count %e.g., take copies of some
or all of the count sheets" %Completeness"
e" determine whether slow)moving, obsolete, and damaged items are identified and
recorded by the count teams.
SAMPLE AUDIT PROGRAMS
f" consider the procedures established for determining cutoff , visit the receiving and
shipping departments and note the last receiving and shipping document numbers
before the count. $f the client&s procedures are not based on prenumbered
documents, then prepare a list of shipping and receiving documents for a period
immediately before and after the end of the period. $nclude documents for returns to
suppliers and from customers, if different documents are used.
c" if appropriate, involve an expert to provide assistance in evaluating the
appropriateness of the value assigned.
%. E5"mine recei&in$ "n iss#in$ "cti&it.
(est, to obtain a moderate to low level of assurance, the cutoff of inventory by using
information obtained at the physical inventory observation and data from cutoff
procedures and the search for unrecorded liabilities. ,erform the following!
a" examine issues transactions and supporting documentation for a period before the
balance sheet date and determine that goods issued before the balance sheet date
have been excluded from raw materials inventory, and that goods included in raw
materials inventory are not included in work in progress, finished goods, sales and
cost of sales.
b" select receiving reports for goods received before the balance sheet date and
determine that all goods received before the inventory have been included in
inventory and liabilities.
c" review supporting documentation for goods not included in the physical count but
included in the general ledger inventory control account %e.g., inventory in transit,
duty and freight, returns" and determine that the goods are properly included in
inventory and the related liability has been recorded.
d" examine purchase and issues transactions and detailed supporting documents
for the period after the balance sheet date to determine that they have been
reflected in the proper period. -here pre)numbered documents are used,
ensure that documents have been used in sequence and earlier numbers are
included in and later numbers excluded from transactions in the period.
e" review records of returned goods and claims against suppliers and related debit
%credit" memoranda for periods before and after the cutoff date to determine that
returns and claims against suppliers made after the cutoff date have been
entered in the appropriate period
(. Test o!solete6 slo'7mo&in$6 scr"ppe or "m"$e listin$
(est, to an extent based upon materiality and inherent risk, the schedules of slow)
moving, obsolete, scrapped or damaged items used to determine the net reali.able
value of inventory by performing the following!
a" determine whether slow)moving, obsolete, scrapped or damaged items have been
adequately identified by!
SAMPLE AUDIT PROGRAMS
i" obtaining and reviewing a schedule of items that have shown little or no
recent movement#
ii" tracing information obtained during the observation of the physical inventory
to management reports of slow)moving, obsolete, scrapped or damaged
items#
iii" reviewing detailed inventory records, bin cards, etc.#
iv" reviewing periodic reports to management concerning such information#
v" discussing with management quantities held in the light of current production
requirements, sales orders received and future marketing forecasts# examine
documentation, including, where appropriate, aged listings of inventory
balances, substantiating the information obtained# and
vi" discussing with management whether any substantial inventory amounts may
not be reali.able because of major delays or disputes, defective work,
marketing difficulties, etc.
b" review the pricing of such inventory and determine whether it is priced in excess
of net reali.able value.
*. Test client8s costin$ of in&entor. et"il
(est the costing of the detailed priced raw materials inventory listings to obtain a
moderate to low level of assurance that accuracy is achieved by performing the
following!
a" obtain and document an understanding of methods and procedures for costing
inventory#
b" perform audit procedures to ensure that the inventory costs are appropriate, e.g.,
trace unit costs of inventory items to and from suppliers& invoices or standard costing
information#
c" determine whether the method of inventory pricing is consistent with the prior year#
and
c" if appropriate, involve an expert to provide assistance in evaluating the
appropriateness of the value assigned.
ACCOU+TS PA4A-LE
Risks
(he accounts payable listing may not be accurate
(here may be unrecorded accounts payable balances
*ccounts payable transactions may be processed in the wrong period
Steps
1. A$ree et"ile "cco#nts p"."!le listin$ to s#mm"r.
+btain detailed accounts payable listing %aged by vendor, if possible" and perform the
following!
SAMPLE AUDIT PROGRAMS
a" trace totals from the detailed accounts payable listing to the totals of the summary#
b" select reconciling items in order to obtain a moderate to low level of assurance that
accuracy is achieved. (race the selected reconciling items to supporting
documentation# and
d" where there are significant reconciling items, determine whether the results of the
investigations have been reviewed and approved by a responsible official.
%. Test for #nrecore li"!ilities
+btain a moderate to low level of assurance that completeness and cutoff are
achieved for accounts payable by selecting all invoices above 2xx and a sample of
other invoice amounts from all accounts payable sources %i.e. the disbursement
records, invoices received and recorded records, goods received not yet invoiced
records and credits for returns" for the period after the balance sheet date up to the
date of the completion of fieldwork. By reference to supporting documentation,
determine whether the item has been properly included as a liability or properly
excluded.