Form AP 55
Index Reference__________
Audit Program for Accrued Liabilities
Legal Company Name Client:
Balance Sheet Date:
Instructions: The auditor should refer to the audit planning documentation to gain
an understanding of the financial reporting system and the planned extent of testing
for accrued liabilities. Modification to the auditing procedures listed below may be
necessary in order to achieve the audit objectives.
All audit work should be documented in attached working papers, with appropriate
references noted in the right column below.
Audit Objectives
Accrued liabilities reflected in the balance sheet
include costs and expenses authorized, incurred, and
for which benefit has been received as of the balancesheet date.
The basis and method of accrual are reasonable and
consistent with the prior period.
Accrued liabilities are properly classified in the
balance sheet and adequate disclosures made in
accordance with IAS.
Financial Statement
Assertions
Completeness
Existence or occurrence
Rights and obligations
Valuation or allocation
Presentation and disclosure
Performed
By
1. Perform analytical review procedures as follows:
a. Compare current-period liability amounts to priorperiod balances and investigate unusual fluctuations.
b. Compare actual amounts to budgeted amounts.
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c. Review general ledger account activity and investigate
any entries that appear unusual.
2. Perform the following procedures regarding accrued
payroll:
a. Compare amounts accrued as of the balance-sheet date
to subsequent payments made.
b. Trace amounts accrued in payroll records as of the
balance-sheet date to amounts recorded in the general
ledger.
c. Compare wages and payroll taxes per the payroll tax
returns to the general ledger.
d. Review compensation agreements for potential
additional liabilities.
3. If the accumulated but unused annual leave is material to
the overall financial statements, perform the following
procedures:
a. Examine client policy, personnel manuals, or other
supporting documentation (e.g., union contracts) to
determine the related policies.
b. On a test basis, recompute the client’s calculation of
accumulated but unused annual leave and determine
overall reasonableness of the accrual recorded as of
the balance-sheet date.
4. If amounts owed to employees for other benefits (use of
flats, vehicles, etc.) is material to the overall financial
statements, perform the following:
a. Obtain from the client and review a copy of the
agreement that specifies the nature, amount and timing
of benefits that the employee will receive.
b. On a test basis, recompute the client’s calculation of
other benefits owed to employees and determine the
overall reasonableness of the accrual recorded as of
the balance sheet date.
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Performed
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5. If deferred income and other deferred credits are material
to the overall financial statements, perform the following
procedures:
a. Obtain an understanding of the nature of the account
and the client’s policy and method of accounting.
b. Test computations of the current year activity (i.e.,
additions and reductions) by examining supporting
documents or by applying analytical procedures to
related revenue and expense accounts.
c. Determine if the method of amortization is consistent
with the prior year.
d. Determine if the deferred credit balance at the balancesheet date is reasonable.
6. Perform the following procedures regarding income taxes
payable:
a. Obtain or prepare a schedule reconciling pretax
accounting income to taxable income, identifying
separately:
• Permanent differences
• Timing differences originating and/or reversing
during the year.
b. Recompute the client’s calculation of income tax
currently payable, using the current tax rate times the
amount of taxable income determined in the schedule
obtained in step (a) and compare to the client’s tax
statement. Confirm current tax payable with the tax
office.
c. Obtain or prepare a schedule calculating the tax
provision for the year (income taxes currently payable
+ required adjustments to the deferred tax account) in
accordance with IAS 12.
7. For liabilities denominated in a foreign currency, verify
that related Mongolian taxes (required to be paid when a
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liability is settled in a foreign currency) have also been
accrued.
8. If the auditor is concerned about the risk of fraud, audit
procedures such as the following should be considered in
addition to the ones listed above:
a. Search for large or abnormal year-end adjustments.
b. Confirm accrued liabilities with outside third parties.
c. Perform detail analyses of expense accruals and trace
and vouch activity in the account.
d. Analyze historical trends in accruals and related
expense accounts.
e. For payroll, perform the following:
(1) Observe payroll distributions.
(2) Scrutinize payroll records for employees with little
or no deductions from their payroll.
(3) Review personnel files for compensation rates.
(4) Test payroll calculations and deductions.
(5) Confirm amounts paid to employees who are at
remote locations working without direct
supervision.
(6) Examine payroll disbursements subsequent to
year-end and compare with accrued payroll at the
balance-sheet date.
(7) Scrutinize the payroll registers for unusual items
such as: names of former employees; duplicate
names, duplicate addresses; unusual pay rates;
unusual number of hours worked; for two different
people.
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10. If other accrued liabilities are material to the overall
financial statements, perform the following:
a. Review the client’s calculation of the accrual and
determine the reasonableness of basis, method, and
amount of accrual.
b. Compare accrual amount to payments made
subsequent to the balance-sheet date, if applicable, for
reasonableness.
c. Reconcile amounts accrued in the current period to the
related expense general ledger control account.
11. Based on the results of the search for unrecorded
liabilities, determine if any additional accruals should be
made as of the balance-sheet date.
Based on the procedures performed and the results obtained, it is my opinion that the
objectives listed in this audit program have been achieved.
Performed by
Date
Reviewed and approved by
Date
Conclusions:
Comments:
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