CLIENT:
AUDIT PROGRAM
__________________________________________________________________
PERIOD:
__________________________________________________________________
SUBJECT:
CONTINGENCIES, COMMITMENTS AND SUBSEQUENT EVENTS
Est.
Hrs.
Phase/
Level
W/P
Ref.
Procedures
AUDIT OBJECTIVES
To determine whether:
A.
B.
C.
D.
The contingent liabilities disclosed by the
management includes all contingencies wherein it is
not yet confirmed whether the entity has a present
obligation that could lead to outflow of economic
benefits or the amounts of which cannot be measured
with sufficient reliability or the existence of which
will be confirmed only by the occurrence of one or
more uncertain future events not wholly within the
control of the entity and that these are adequately
classified and disclosed.
Contingent liabilities do not include:
 any obligation which should be provided for in
the books of account of the Company as the
probabilities of its outcome against the Company
are on the higher side and the quantum and
timing of payment may be estimated;
 any obligation for which the possibility of
outflow of resources embodying economic
benefits is remote.
All the future commitments embodying outflow of
economic benefits against committed transactions
have been identified, classified and disclosed as
commitments.
All significant subsequent events have been identified,
analysed and adjusted for or disclosed as appropriate.
SUBSTANTIVE PROCEDURES
1. General Contingencies
1.1
1.2
1.3
1.4
Obtain schedule of contingencies.
Review the results of audit procedures performed in
other heads of accounts.
Read significant contracts, loan agreements, leases,
service guarantees, insurance policies (or note the lack
of insurance), and other sales or leases contracts.
Determine, through inquiry and review of sales and/or
lease agreements, policies in effect with respect to
returns, repurchases, and future allowances applicable
to sales or leases.
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By
S/AP
Comments/Explanations
CLIENT:
AUDIT PROGRAM
__________________________________________________________________
PERIOD:
__________________________________________________________________
SUBJECT:
CONTINGENCIES, COMMITMENTS AND SUBSEQUENT EVENTS
Est.
Hrs.
Phase/
Level
W/P
Ref.
Procedures
1.5
1.6
1.7
1.8
1.9
1.10
1.11
1.12
1.13
Determine, through inquiry and review of minutes,
contracts/agreements, and bank confirmations,
accounting and operating policies in effect with
respect to interest rate and foreign currency
futures/hedges.
If an estimate of financial effect of contingency is
disclosed in financial statements then inquire of and
discuss with management the client’s policies and
procedures for determining the estimated financial
effect of contingencies, including those resulting from
litigation, claims, and unasserted claims.
Ensure that the amount disclosed should be the best
estimate of the outflow which may be required to
settle the potential obligation at the balance sheet date
which an enterprise would rationally pay to settle such
potential obligation at the balance sheet date or to
transfer it to a third party at that time.
Ensure that the risks and uncertainties that inevitably
surround those events and circumstances are taken
into account in reaching the best estimate of a
contingency.
Ensure that future events that may affect the amount
required to settle a potential obligation is reflected in
the estimated amount where there is sufficient
objective evidence that they may occur.
Ensure that the effect of possible new legislation is
taken into consideration in measuring the disclosed
amount of contingencies when sufficient objective
evidence exists that the legislation is virtually certain
to be enacted.
Ensure that gains from the expected disposal of assets
is not taken into account in measuring a contingent
amount, even if the expected disposal is closely linked
to the event giving rise to the contingency.
Where some or all of the expenditure required to settle
a contingent liability is expected to be reimbursed by
another party, ensure that the reimbursement should
be disclosed when, and only when, it is virtually
certain that the reimbursement will be received if the
enterprise settles the potential obligation.
Ensure that the client’s representation regarding
contingencies and commitments has been included in
general representation letter.
2. Tax Contingencies
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S/AP
Comments/Explanations
CLIENT:
AUDIT PROGRAM
__________________________________________________________________
PERIOD:
__________________________________________________________________
SUBJECT:
CONTINGENCIES, COMMITMENTS AND SUBSEQUENT EVENTS
Est.
Hrs.
Phase/
Level
W/P
Ref.
Procedures
2.1
2.2
2.3
2.4
Obtain professional opinion of the tax consultant of
the entity so as to assure the degree and extent of
exposure.
Refer to the tax working papers, particularly tax
position schedule in order to identify any potential
contingent liability.
Obtain from client any reports/details of sales tax
audits/income tax audits.
Obtain from client any notices of demand/show cause
notices served during the period/subsequent to yearend.
3. Litigation, Claims and Assessments
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
Review the cases identified in the light of details as
provided.
Circularize confirmations to legal counsels. Prepare
confirmation control sheet. Mail first requests. Send
second and third requests as required.
Examine documents, including correspondence and
invoices from lawyers, in the client’s possession
concerning litigation, claims and unasserted claims.
Evaluate replies to our letters from legal Advisors.
Analyse the disputed claims of contractors and other
parties and review the details of disputes as provided
to us.
Complete Contingencies and Commitments Form
[Litigation, claims and assessments and compliance
with laws and regulations – Practice Aid].
Inquire of management and describe client policies
and procedures for identifying, evaluating, and
accounting for litigation, claims and assessments.
Inquire of the appropriate level of management and
describe the policies and procedures that the client has
in place to monitor compliance with laws and
regulations, including those procedures designed to
prevent the occurrence of illegal acts.
Make inquiries from the appropriate level of
management of the existence of illegal acts or events
of non-compliance with laws and regulations.
4. Outstanding bank guarantees
4.1
4.2
Prepare summary in accordance with
confirmations received from banks.
Review the bank guarantee letters/agreements.
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the
By
S/AP
Comments/Explanations
CLIENT:
AUDIT PROGRAM
__________________________________________________________________
PERIOD:
__________________________________________________________________
SUBJECT:
CONTINGENCIES, COMMITMENTS AND SUBSEQUENT EVENTS
Est.
Hrs.
Phase/
Level
W/P
Ref.
Procedures
4.3
4.4
Examine returned standard bank confirmations forms
and any other returned confirmations of bank credit
arrangements for contingent liabilities, letters of
credit, and compensating balance arrangements.
Ascertain whether any bank guarantee also
constitutes/reveals a contingency.
5. Commitments
5.1
5.2
5.3
5.3.1
5.4
5.5
Obtain schedule of commitments from the client.
Inquire as to material commitments to complete sales
contracts at a loss or that cannot be fulfilled;
repurchase assets previously sold; purchase quantities
in excess of requirements or at prices in excess of
prevailing market prices; construct or acquire
property, plant, equipment, investments, intangibles,
or other non current assets.
Refer capital commitments relating to long- term
projects from capital work in progress.
Refer minutes of meeting of Board of Directors for
potential capital commitments.
Refer unfulfilled purchase orders relating to capital
expenditure for potential capital commitments.
Cross refer potential capital commitments from
capital expenditure budgets.
6. Standard Working Schedules
6.1
Ensure that the following FIRM’S STANDARD
FORM schedule have been incorporated, if
applicable, in our working papers:
 Contingent Liabilities (Bank wise);
 Capital Commitments;
 Contingencies – pending litigations;
 Form for Documentation of information
regarding law suits – company being plaintiff;
 Letter of credit – capital and operating;
 Commitments – Letter of Guarantee (contra);
 Contingencies and commitments;
 Pending litigations and other legal matters;
 Operating lease commitments; and
 Finance lease commitments.
7. Subsequent Events Review
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By
S/AP
Comments/Explanations
CLIENT:
AUDIT PROGRAM
__________________________________________________________________
PERIOD:
__________________________________________________________________
SUBJECT:
CONTINGENCIES, COMMITMENTS AND SUBSEQUENT EVENTS
Est.
Hrs.
Phase/
Level
W/P
Ref.
Procedures
7.1
7.2
7.3
7.4
7.5
7.6
7.7
7.8
7.9
7.10
Read the latest available interim financial statements;
compare them with the financial statements being
reported upon; and make any other comparisons
considered appropriate in the circumstances
(including comparison to the budget or loan
covenants, if deemed necessary).
Review latest budget or forecast for subsequent period
for items impacting the current audit.
Review the following for unusual transactions after
year-end:
 General Ledger
 Cash Book
 Sales Reports
 Income Statement
 Balance Sheet
Fill subsequent events/Post Balance Sheet Events
review checklist.
Inquire of and discuss with officers and other
executives having responsibility for financial and
accounting matters (limited where appropriate to
major locations) as to whether there have been any
events, transactions, etc., that occurred after yearend
up to and including the opinion date that have a
significant effect on the financial statements or should
be disclosed therein.
Discuss whether the internal statements have been
prepared on the same basis as that used for the
statements under audit.
Discuss whether any substantial contingent liabilities
or commitments existed at the date of the balance
sheet being reported on or at the date of inquiry.
Discuss whether there was any significant change in
the capital stock, long-term debt or working capital to
the date of inquiry.
Discuss the current status of items in the financial
statements being reported on that were accounted for
on the basis of tentative, preliminary or inconclusive
data.
Discuss whether any unusual adjustments had been
made during the period from the balance sheet date to
the date of inquiry.
Other tests as deemed necessary
Page: 5/6
By
S/AP
Comments/Explanations
CLIENT:
AUDIT PROGRAM
__________________________________________________________________
PERIOD:
__________________________________________________________________
SUBJECT:
CONTINGENCIES, COMMITMENTS AND SUBSEQUENT EVENTS
Est.
Hrs.
Phase/
Level
W/P
Ref.
Procedures
By
S/AP
Comments/Explanations
Management Letter
Prepare management letter points including:
 Internal control weaknesses;
 Business improvement opportunities;
 Legal non-compliance;
 Accounting system deficiencies; and
 Errors and irregularities not material at the
financial statements level.
Disclosure
Ensure appropriate disclosure have been made in
accordance with the reporting framework and fill
relevant portion of Financial Statement Disclosure
Checklist (FSDCL).
Supervision, Review and Conclusion
1.
2.
3.
4.
Perform Senior review and supervision.
Resolve Senior review points.
Resolve Partner and Manager review points.
Conclude response to the audit objectives.
Audit conclusion
Based on the substantive test procedures, I/we performed as outlined above, it is my/our opinion that the audit objectives set forth at
the beginning of this audit program have been achieved, except as follows:
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________
Date:____________
______________
Signature
___________
Job Incharge
Page: 6/6
________
Manager
_______
Partner