Execution Phase –
Sample Audit Programs
Liabilities – Equity
Execution Phase –
Sample Audit Programs
Liabilities – Equity
WP Ref.:
Prepared by:
Date:
Reviewed by
Date
Audit Program
(g)
Liabilities Against Assets
Client:
Period:
Subject:
Liabilities Against Assets
Amount in Rs.
Account balances:
Classes of transactions:
S. No.
Audit Objectives
Assertions
IR
To ensure that liability represents valid
claims by lessor against assets leased to
the entity under finance lease
arrangements.
Existence, Rights
& Obligations
To ensure that the entire liability against
finance lease arrangements has been
accounted for in the books of the
company on a timely basis.
Completeness
To ensure that liability is recorded at the
correct amount.
Valuation
To ensure that the liability has 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.
Presentation &
Disclosure
Risk Assessment
CR
ROSM
Execution Phase –
Sample Audit Programs
Liabilities – Equity
S. No.
Audit Procedures
Analytical Procedures
1.
Compare balances to prior periods and budgets seeking
explanations for unusual items and significant
variances.
2.
Review movement during the year in long term deposits
and ensure reasonableness of changes during the year.
Test of Details
1.
TEST LIABILITIES AGAINST ASSETS SUBJECT TO
FINANCE LEASE.
A.
Obtain a schedule(s) of Finance and operating leases
(including any that existed at the end of the prior year,
as well as any new leases). For finance leases, the
schedule should show beginning and ending balances
and borrowings and repayments during the year. For
operating leases, the schedule should show current-year
rent expense.
1.
2.
To obtain assurance about the completeness of the
schedule:
1.1
Make inquiries of knowledgeable
management.
1.2
Consider any evidence of additional leases
obtained through examination of minutes of
the board, significant contracts,
confirmations of bank accounts, support for
subsequent cash disbursements (when
testing payables) or for property additions,
and other documents.
Test the summarization and trace the ending
balances (for operating leases, the current-year
amount of rent expense) to the general ledger.
Done by
W. P. Ref.
Execution Phase –
Sample Audit Programs
Liabilities – Equity
B.
Read the lease agreements (or descriptions thereof in
our permanent files) and determine that each is
accounted for as a capital or an operating lease, as
appropriate. Determine that the leased property is still
in use.
Execution Phase –
Sample Audit Programs
Liabilities – Equity
S. No.
Audit Procedures
C.
D.
2.
Make a selection of finance leases. Prepare, or have the
client prepare, confirmation requests, and perform the
following:
1.
Ascertain that the confirmations request all
information likely to be relevant to our tests of
the leases and related interest balances (e.g.,
applicable interest rates, due dates, the date to
which interest has been paid, and the nature and
original value of the property leased).
2.
Mail the request under our control to the lessor.
3.
Send second requests for non-replies.
4.
Compare replies to requests. Prepare, or have the
client prepare, reconciliations of exceptions.
Trace reconciling items to supporting documents.
For new lease obtained during the year:
1.
Review the lease agreements to ascertain its
nature as to finance or operating lease.
2.
Check proper approval of lease transaction.
3.
Ensure that only principal portion has been
recorded as liability against assets subject to
finance lease.
4.
Review the security documents.
5.
Evaluate results of the tests.
TEST RENTAL EXPENSE
A
For rentals paid during the year check the following:
1.
The amount of lease rentals from lease
amortization schedule.
2.
Proper bifurcation of lease rental into principal
portion paid and finance charges paid.
Done by
W. P. Ref.
Execution Phase –
Sample Audit Programs
Liabilities – Equity
S. No.
3.
Audit Procedures
3.
Verify payment from bank statements.
4.
Check calculation financial charges amortization
schedule.
B.
For selected parties, circularize confirmation requests.
Match replies to confirmation with amount given in the
schedule.
C.
Evaluate results of the tests.
TEST VALUATION AND PRESENTATION
A.
Check that lease liabilities are properly bifurcated into
current and non-current portions.
B.
Determine that disclosures have been made in
accordance with requirement of Companies Ordinance,
1984 and relevant accounting pronouncements.
Done by
W. P. Ref.