Client:
Period:
Subject: Accrued Expenses
Account balances:
Classes of transactions:
S. No. Audit Objectives
To ensure that accrued expenses represent valid claims by suppliers against goods delivered or services rendered to the entity.
To ensure that all goods and services received by the entity have been accounted for in the books of the company on a timely basis.
To ensure that liability is recorded at the correct amount.
To ensure that payables have been presented, classified and disclosed in the financial statements in accordance with the requirements of applicable financial reporting framework i.e.
Companies Ordinance, 1984 and applicable International Financial
Reporting Standards.
Assertions
Existence, Rights
& Obligations
Completeness
Valuation
Presentation &
Disclosure
WP Ref.:
Prepared by:
Date:
Reviewed by
Date
IR
Amount in Rs.
Risk Assessment
CR ROSM

S. No. Audit Procedures
Test of Controls
Objective
Select purchase transactions over the period under audit and ensure the following controls have existed during the period:
Purchase orders are approved at an appropriate level.
Only authorized purchases are made
Purchase orders are serially numbered. All purchase orders are entered into the records
Entries are made only on the basis of approved Goods Received Notes
(GRN).
Credit to accrued expenses represent goods actually received
Done by W. P. Ref.
Entry to accrued expense account is authorized at appropriate level and supported by appropriate calculations.
Suppliers’ invoices are checked for calculation and casting by a person independent of the purchase department
All entries to
Accrued expenses are authorized
Accrued expenses are recorded in the appropriate amount
Price charged by the supplier is verified for appropriateness, for e.g. by agreeing the rates charged to approved price lists or quotations.
Accrued expenses are recorded at the appropriate amount
An independent person compares the purchase orders, goods received notes and suppliers invoices for consistency.
Accrued expenses have been booked at appropriate amount and represent valid claims by third party
Suppliers’ statements are obtained and reconciled to accounting records on a regular basis
Accrued expenses are accurately recorded

4.
5.
S. No. Audit Procedures
Credit notes are checked for correctness of calculation by a person independent of the preparer.
Credit notes have been entered in the same period to which the purchases relate.
Credit Notes issued are properly calculated and recorded at appropriate amount
Done by W. P. Ref.
Credit Notes are recorded in an appropriate period
Analytical Procedures
1.
2.
Compare accrued expenses to prior periods and budgets seeking explanations for unusual items and significant variances.
Review monthly movement of accrued expenses in order to identify any inconsistency particularly towards the period end.
3.
Analyse the turnover of trade creditor – ratio of creditors to total operating costs and compare to prior periods and budgets, seeking explanations for unusual items and significant variances.
Review the ratio of individual expense accounts to sales or other appropriate base.
Review the accrued expense, purchases or expense ledgers to identify whether there are any significant purchases or expenses towards the period end. Check that these have been accounted for in the correct period.

S. No.
1.
Audit Procedures
Test of Details
TEST THE PROPRIETY OF ACCRUED EXPENSE
ACCOUNTING POLICIES AND PROCEDURES
A. Review the information in prior-year working papers and/or inquire concerning the nature of each significant accrued expense account and the policies and procedures used to account for them.
B. Inquire as to the reasons for significant changes in accrued expense balances since the prior year.
Done by W. P. Ref.
C. Determine that the accounting policies and procedures for identifying when liabilities should be recorded are appropriate and applied consistently.
D. In the course of performing the following procedures in this Program, consider whether audit evidence we examine supports our understanding of accrued expense accounting policies and procedures and their propriety.
2. TEST ACCRUED EXPENSES BALANCES
A. Perform Procedure 1, Steps B to D, in the Model
Audit Program for Payables. For selected subsequent cash disbursements or unpaid invoices that indicate liabilities incurred but not recorded as accounts payable in the audit period, ascertain that they were recorded in an appropriate accrued expense account.

S. No. Audit Procedures
B. Inquire and/or review information in prior-year working papers concerning the nature of recorded accrued expenses. Inquire and consider other available evidence, if any, that unrecorded or underrecorded liabilities exist. Consider the following sources of evidence, among others, as applicable: prior-year balances of accrued expense accounts; prior and current-year balances of related expense accounts; minutes of meetings of the board of directors; discussions with internal legal counsel; responses to letters of inquiry to independent legal counsel; employee benefit plans (e.g., pension, medical, vacation, deferred compensation) and reports from actuaries, insurance companies, etc.; subsequent payroll records; significant contracts for services performed in the audit period.
Done by W. P. Ref.
C. Make a selection of the significant accrued expenses noted while performing Steps A and B (including any that appear to exist but are unrecorded or underrecorded).
1. For selected accruals that are based primarily on known data (i.e., that are not accounting estimates), examine documents supporting the amounts accrued (e.g., service contracts or invoices, subsequent payroll records, property tax statements).
2. For selected accruals that are accounting estimates (e.g., liabilities for certain employee benefits plans and legal contingencies):
2.1 Evaluate the reasonableness of the methods and assumptions management used to make the estimates.
2.2 If management's methods and assumptions were reasonable, test the data and assumptions underlying the estimates, and re-compute the estimates.

3.
S. No. Audit Procedures
2.3 If management's methods and assumptions were not reasonable, develop an independent range of reasonable estimates and determine whether management's estimates fall within that range. (Note:
The factors that might be considered will vary according to the nature of the liabilities.)
Done by W. P. Ref.
3. For selected accruals with significant balances in the prior year that no longer exist or that have significantly lower balances in the current year:
3.1 Assess whether the circumstances requiring the accruals in the prior year no longer exist or whether they warrant reductions in the amounts accrued.
3.2 If the accounts consist of only one or very few transactions (e.g., a prior-year accrual for a legal liability), trace the disposition of the liability (or partial disposition) to supporting documents (e.g., cancelled checks).
4. Evaluate results of the tests.
TEST PRESENTATION OF ACCRUED EXPENSES
A. Determine that the following balances, if any, are properly classified:
1. Debit balances in accrued expenses.
2. Non-current accrued expenses.

5.
4.
S. No. Audit Procedures
B. Determine that the following, if any, are properly recorded, classified, and/or disclosed, as appropriate:
1. Accrued expenses owed to related parties.
2. Loss contingencies.
Done by W. P. Ref.
3. Retirement plans.
4. Post retirement health care and life insurance benefit plans.
5. Property taxes estimated with a substantial measure of uncertainty.
6. Lease obligations.
TEST BALANCES DENOMINATED IN FOREIGN
CURRENCIES
A. Agree the closing exchange rate(s) used to published records and test the translation calculations.
TEST PRESENTATION OF RELATED-PARTY
BALANCES
A. Inquire and consider available evidence, if any, to identify all related parties. Obtain a schedule of related-party balances and determine that all identified related parties with balances at year end are included in the schedule. Trace the amounts in the schedule to the trial balance.
B. Determine that the economic substance of the relatedparty balances supports their recording.
C. Evaluate the reasonableness of presentation and/or footnote disclosures of related-party balances.
D. Consider requesting positive confirmation of material balances with related parties.

S. No. Audit Procedures
6.
TEST ACCOUNTING ESTIMATES FOR BIAS
A. Perform a retrospective review of significant accounting estimates reflected in the financial statements of the prior year to determine whether management judgments and assumptions relating to the estimates indicate a possible bias on the part of management.
1. The significant accounting estimates selected for testing should include those that are based on highly sensitive assumptions or are otherwise significantly affected by judgments made by management.
2. Consider the results of this retrospective review in evaluating the current-year estimates. If we identify a possible bias on the part of management in making prior-year accounting estimates, we should evaluate whether circumstances producing such a bias represent a risk of a material misstatement due to fraud.
B. Consider whether differences between estimates best supported by the audit evidence and the estimates included in the financial statements, even if they are individually reasonable, indicate a possible bias on the part of the entity's management. If so, reconsider estimates taken as a whole.
Done by W. P. Ref.

S. No. Audit Procedures
7.
TEST UNUSUAL ENTRIES RECORDED TO THE
GENERAL LEDGER
A. Investigate journal entries from sources that are typically not associated with this account.
1. When selecting items to be tested, consider (a) our assessment of the risk of material misstatement due to fraud, (b) the effectiveness of controls over the preparation and posting of journal entries, (c) the entity's financial reporting process and the nature of the evidence that can be examined, (d) the nature and complexity of the accounts, and (e) the amount and number of such entries. Because fraudulent journal entries often are made at the end of a reporting period, our testing ordinarily should focus on the journal entries and other adjustments made at that time.
In addition, because material misstatements in financial statements due to fraud can occur throughout the period and may involve extensive efforts to conceal entries at the end of the reporting period, we should consider whether there also is a need to extend the testing of journal entries to other periods within the period under audit.
Done by W. P. Ref.
B. Examine related accounting records and determine whether the selected debit/credit is valid, appropriate, and authorized. Determine whether the selected entry was properly recorded in the correct period and consider the possible implications of such journal entries on internal control.

8.
S. No. Audit Procedures
C. Determine whether the entries exhibit characteristics of inappropriate or unauthorized journal entries such as (a) entries made to unrelated, unusual, or seldomused accounts or business segments, (b) entries recorded at the end of the period or as post-closing entries that have little or no explanation or description,
(c) entries made either before or during the preparation of the financial statements that do not have account numbers, and (d) entries that contain round numbers or a consistent ending number.
Done by W. P. Ref.
D. Evaluate the reasonableness of other adjustments (e.g., entries posted directly to financial statement drafts, consolidating adjustments, report combinations, and reclassifications) made in the preparation of the financial statements.
EVALUATE BUSINESS RATIONALE FOR
SIGNIFICANT UNUSUAL TRANSACTIONS
A. If we become aware of significant transactions that are outside the normal course of business or that otherwise appear to be unusual given our understanding of the entity and its environment, perform the following procedures:
1. Gain an understanding of the business rationale for such significant unusual transaction.
2. Consider whether the transactions involve previously unidentified related parties or parties that do not have the substance or the financial strength to support the transaction without assistance from the entity we are auditing.
3. Determine whether that rationale (or the lack thereof) suggests that the transactions may have been entered into to engage in fraudulent financial reporting.