THE SIGNIFICANCE AND OBJECTIVES OF SOURCE DOCUMENTS IN AUDIT INVESTIGATION A CASE STUDY OF ORJI CHUKWU AND CO CHARTERED ACCOUNTANCTS

CHAPTER ONE

BACKGROUND INFORMAITON

1.1     INTRODUCTION

          RELEVANCE OF INVESTIGATION

          Every business entity, be it profitable or non profitable, have goals and objectives for which they were established example, most liability companies are established for profit optimization and charitable or non-profit organizations, example, government parastatates reestablished to subsidize costs to the governed.

          However, its pertinent to note here that whether upon profitable or non profitable basis, its relevant that accounting records must be maintained Accounting is broadly defined as a process of recording analyzing and interpreting at business transactions in such a systematic and concise manners as to give full and detailed explanation to related parties who are interested in the financial statement.  In every business organizations, it’s the duty of the chief accountant to keep records of all business transactions of the organization.  However if thus records must be kept, it must follow norms principles, conventions and standards et out by various professional accounting bodies.  In Nigeria, the Nigeria accounting standard board (NASB) is in charge of this duty.

          Subject to the foregoing, section 357 of the company and allied matters decree,. Makes it mandatory for every limited liability company to appoint an Auditor to examine its accounts.

          This now brings us to the question, who is an auditor? With reference to Walter N. Bigg, he sees an auditor as a person appointed by the directors (Shareholder authorize the directors to appoint) of a company to examine its books of account and stake whether it gives a true and fair view of the financial position of the entity and also see that there is compliance with statute and that accounting standard are strictly adhered to.  In the light of the above, the auditor should be a professional and used in the accounting field, with high integrity profile and must be a member of a recognized professional body and must be licensed to practice.  In Nigeria today, the institute of chartered accountants Nigeria takes care of this.  If the auditor as a professional is a ware of the fact that his work is relied upon by related third parties, he owes it a duty to the reasonable care and skill in the discharge of his duty so as not to expose  himself to liabilities associated with negligence out of misfeasance proceedings.

In the light of the above, for the auditor to accept assurances or to give in opinion, he must certify himself beyond all reasonable doubt that the presentation made to hi gives a true and fair view of the financial position of the entity as at the date of his audit.

In these regards, he has access to all the company books and has unreserved rights as to question any maladministration, and gather all such information that would assist him in his work.  However, for the auditor to formally accept assurances, has basis of acceptance must be dependent on the availability of reliable source of documents and explanations produced by the entity in question. At diverse levels of investigation Associate source documents checks and test are applied and evidences shown must be very authentic and satisfying. For example where bank balances are investigated, for the auditor to accept the stated figures, the certifying evidences should be, bank statements, check stamps, cash books, authorization vouchers, etc and all such reconciliation that would enable him accept the presented bank balances as shown on the account.  It is pertinent to note that the presentation and figures without satisfactory evidence, or source document is like a student graduating without a certificate and thus bring us to one of the objectives of this text.

The investigation process involves making independent confirmation, example circulation of debtors, creditors and other related third parties to the entity in question.  Generally the process  of audit investigation is limited by so many factors which includes: cost consideration, time factors, unavailability of data.  Distance and prevailing socio-economic and political climate, in as much as thus factors are political climate, in as much as thus factors are highlighted an noted, the auditor must not fail to certify himself beyond all reasonably doubts.  This should be done by disclosing all lapses and discrepancies and must not fail to give qualifications when need be.  In all circumstances, he, the audit should try to avoid damages  associated with negligence as number of cases related to auditors liability has been recorded some of the case includes:  CAPRO industries Vickman (1989) see SCDH.  Group VMC farlance (1972) see JEP Fasteners Vmarts Bloom and Co (1981) also see security pacific business credit V peat MARWICK MAL & CO (1992).

THE FIRM

          This study is designed to examine the activities, responsibilities and legal framework under which the auditor in public practive operates. This is with the appraisal of a relatively small firm of charterd accountants in Nigeria today, Orji Chukwu and co.  with Head Office at 57 Chime Avenue New haven Enugu and other offices in Enugu state and Lagos.

          Orji chukwu and Co is a relatively small firm of chartered accountants, founded in Nigeira in the year 1987 as a partnership between Orji Orji Chukwu L and Onyemelukwe C.  The firm today has offices in about three states of the federation and efforts are made to erect more offices in other stated.  In its early years, its main objectives, was centered on Financial management consultancy and audit and investigations, but today it has grown broth in size and scope it services rendered.  It is interesting to now that the following range of services are now available at Orji Chukwu and co-chartered accountants.

1. Tax consultancy

1. Information technique Enlargement

1. Business advisory services.

STAFFING

          In each state, the firm is headed by

1. Resident partner (a qualified accountant) and two assistants also qualified person

1. 4 senior audit staffs

1. 3 junior audit staff

1. Corpers

1. Industry trainees

1. Office assistants.

In the whole, the firm has about 32 staffs and efforts are onto recruit more employees to enable the firm meet with increasingly clientship.

1. 1. STATEMENT OF THE PROBLEM

As has been mentioned earlier, there is a legal dimension to the auditors job.  The duties of the auditors are outlines in section 360 (I) of the company and Allied Decree 1990).  Any contravention of the requirement of this section of the decree attracts a penalty.  Again the report of the auditor as an important document, not only, to the shareholders of a company, but also to related third parties.  Cases have been recorded, where auditors have been convicted by courts of law for negligence resulting from misfeasance proceedings.  Consequently, it is very important that an auditor should exercise due professional care in the discharge of his duties to minimize his exposure.

The problems now faced by the auditors in public practice, is how they can attain this standard required of them, and also the needs of other parties who may be interested in the financial statements they are auditing. This study aims at striking out the various source documents. Tests, and checks to be applied during the investigation on process.  So as to guarantee the completeness of the audit investigation  and the financial report three-on.

1.5     SOURCE DOCUMENTS AND INVESTIGATIONS RELATED TO CAPITAL RESERVES, DIRECTORS AND STATUTORY WORK OBJECTIVE OF THE AUDIT INVESTIGATION

          The objectives is to form an opinion as to whether

1. The share capital has been properly classified and described in the account

1. The reserved have been properly described and only applied for the purposes permitted by the company’s articles, or companies Act.

1. Movements on reserves are correctly stated in accordance with the appropriate resolutions

1. Dividends paid and payable are correctly states in accordance with he appropriate resolutions

1. Directors remuneration is correctly disclosed in the accounts, and is in accordance with the articles, Board and members resolutions, or any service agreements, that is, (PPIB).

1. The information required by companies act has been correctly recorded in the statutory books kept by the company for that purpose

1. Resolutions are in accordance with the articles and the accounts reflect the decisions.          

SOURCE DOCUMENTS TO BE VERIFIED OR INVESTIGATED

1. Make a summary of authorized and issue share capital

1. Summarize the share holding

1. Directors shareholding

1. List of directors, secretaries and principal officers

1. Annual returns summarized

1. Extract from minutes, that is, directors meeting, AGM and other meetings

1. Movement on reserves and profit and loss account

1. Dividends proposed and paid, gross tax deducted

1. Directors emoluments

1. Preliminary expenses list.

1. CAPITAL

1. Prepare a schedule showing opening and closing position and movement in share capital

1. Vouch movement with minutes

1. Bring up to date, the history of share capital in the paramount life

1. Ensure that he authorized capital accord with he memorandum and articles of association or amendments where to (see registrars, registration of increase).

1. DIVIDENDS

1. Prepare statements of dividends paid and proposed showing payment lates

1. Agree to appropriate board, AGM, resolution

1. Ensue it is within statutory income guidelines limit

1. Non compliance or (b) or (c) should be noted as points on account

1. Check calculations, ensure that propsoed dividends are shown in accounts

1. Verily that withholding tax has been accounted for to appropriate revenue authorities.

1. Check total dividend paid in cash-book and posting to nominal ledger

DIRECTORS

1. Examine register of directors and prepare list of directors and their share and debenture holdings, showing the corresponding holding for previous year

1. Confirm new appointment and re-election of directors with board and members resolutions

1. Verify that director’s qualifying shares are held in accordance with articles of association of the company

1. Verify that the number of directors complied with the articles.

1. Verify that section of CAMD related to age limit of directors are complied with

1. Verify that returns of all changes in the appointment of directors and secretary have been made to the registrar of companies.

PRELIMINARY EXPENSES SHRE AND DEBENTURE ISSUE EXPENSES

1. Prepare a schedule reconciling opening and closing position of issuing share and debentures

i.        preliminary expenses

1. 1. Commission paid in respects of shares, or debentures

1. 1. Discount issue of shares of debentures

1. Vouch with invoices etc.  see that commission paid are in accordance with the terms of issue and section 54 of the companies Act 1968.

1. Vouch entries in cahs book and normal ledger

ANNUAL RETURNS

1. Verify that a return made up of 42nd day after AGM has been filed with the registrar of companies

1. Inspect copy and filing receipts

1. Confirm accounting references date, and if it has changed, ensure that appropriate notive has been given to the registrar of companies

RESERVES

1. Prepare a schedule reconciling the opening and closing positionfo reserves

i.              Share premium account

1. Revaluation surplus reserve account

1. Other reserves

1. Vouchi movements during the year, and confirm with minutes.

1. Source(s) of any increase and applications of any decrease

1. Bring up to date the history of reserves in the permanent files

1. See that any restriction on the application of researves are complied with by reference to section 57 of companies act of 1968, the guidelines of the PPIB the company: Articles, debenture trust deeds,e tc.

TRANSFER OF SHARES

i.              Check to Board resolutions

1. Ensure that share transfer forms have ben withnessed

1. Checked that correct entry has been made ion the register of members

DEPOSIT FOR SHARES

1. prepare detail schedule and vouchi items there on

1. check that  they have been adopted by the board.

REGISTER OF MEMBERS

1. List members and shareholder where practiceable, showing percentage holding

1. Agreed-issued capital with register of members registrar obtain certificate in a suitable form from the registrar.

1. Check that share certificates have been issued to all members

DIRECTORS REMUNERATION

1. Obtain, or prepare a schedule of drectors remuneration under headings apporpriate for inclusion ion the accounts distinguished between the emoluments paid by company and company’s subsidiary

1. Vouch emoluments paid by reference to

1. Company’s articles

ii   Device agreement or other evidence as agreed

1. Board members resolution

1. The productivity prices and income board guiding

1. Obtain signed copy of statement from each of the directors setting out the information on directors emoluments.

BOARD AND MEMBERS MINUTES

1. Examine and make extract as necessary minutes of directors and numbers

1. Ensure  AGM was held within statutory period

1. Note if decision had been implemented

1. 1. SOURCE DOCUMENTS AND INVESTIGATION RELATED TO DEBENTURES, TAXATION, CREDITORS AND ACCRUED CAHRGES.

THE OBJECTIVE OF THE AUDIT INVESTIGATION

                The objective is to form an opinion as to whether

i.              Debentures, motgages and long term loans are fairly stated and are properly described and classified as requiared by he companies Act.

1. Disclosure has been made of these loans which are secured on the assets of the company

1. Aggregate borrowings (including where apropriate, overdrafts and other short term loans) are not in excess of the maximum permitted according to the articles or terms of any loans trusted

1. The company has complied with requirements any sinking fund established under the terms of loan

1. The terms of conversion of any convertible loan stock have been complied with

1. The register of mortgage and charges correctly records the informaiton required under the companies act.

1. Interest has ben paid in accordance with the terms of loans agreements

1. The balance sheet fairly states and porperly describeds the company’s aggregate liability for tax, or the extent of the tax recoverable at the accounting date.

1. The liability for deferred taxation is correctly stated

1. The P and L account fairly states the charges for taxation on profits for the year, including any adjustment required to the charge for taxation in prior years and properly reflects tax attributable to extra ordinary items

1. All mateira iability existing as at balance sheet date are all reflected in the accounts

1. The libailities has been described and disclosed on statute basis

1. Adequate disclosure has ben made of any loans or other short term libailities, which are secured on the assets of the company.

SOURCE DOCUMENTS TO BE VERIFIED OR INVESTIGATED BORROWING

1a.           Reconcile the opening and closing balance of debenture term loans

b              Vouch redemption repayment during the year and new loans

1. Note the volume of security given

1. Verify that borrowings per article have not been exceeded, other wise note as points , on the accounts

1. Check that register of mortgages and charges are written up to date

1. Ensure that all borrowings and charges are subject of an appropraite resolution

1. Check that he terms of the debentures deed/loan are complied with

1. Obtain confirmation, where appropriate from leaders of the amounts outstanding and security held

INTEREST

1a            Prepare a schedule of interest payable correlate opening liability, payment and closing liability

b.             Vouch amount paid, check calculations and treatment of interest in the accounts

c.             Check deduction of income tax and its payments to appropriate tax authorities

TAXATION – CURRENT YEAR

1. Prepare provisional computations for

i.              Income tax, including capital allowance computations ensure that analysis of expenditures accounts, generally requested by the revenue are in the file

1. Capital gain tax (statement) if any

1. Vouch payment made  during the year

1. Ensure that where expenditure on fixed assets exceeds N2000 in the  year, an acceptance certificates has been obtained from the inspectorate division of the federal ministry of industries in compliance with the industrial inspectorate act, 1970.

TAXATION – PREVIOUS YEAR

1. Obtain a copy of previous year tax computations

1. Compare amounts provided in respect of previous years with the computation sent to FBIR and adjust for under and over provisions

1. Determine the extent of other tax liabilities

1. Verily that the taxation effect of any extra-ordinary or prior year item has been correctly isolated, and has been dealt with as part of extra ordinary, or prior year items being separately disclosed

DEFERRED TAXATION ONREVALUATION OF ASSETS

1. Prepare a reconciliation of the opening and closing provision for tax equalization, taking accounts of the differences between

1. Accounts and tax, written down value of assets ranking for capital allowance

1. Cost and value arising from revaluation of any assets, example property.

1. Disallowable provisions and accruals in the accounts, allowable to different tax years.

CREDITORS AND ACCRUED CHARGES.

1. Prepare a summary of creditors and accrued charges, showing corresponding amounts in the previous year

1. Prepare supporting schedules where necessary, and cross reference to summary

1. Compare amounts in current year with the previous year and enter into material variations or omission

1. Note as point on accounts of provisional appear to be material excessive or inadequate for their purpose, or have been utilized for other purposes

1. Note whether particular liabilities are secures

TRADE AND SUNDRY CREDITORS

                With regards to trade and sundry creditors.

1. Trace balances to the ledger

1. Agree with control accounts

1. Reconcile balances with suppliers statements

1. Check payments there on made after year and to cash book / ledger of subsequent period

1. Select block of 25% of balances and analysis outstanding balances, as per supplier invoices and in particular enquire into no account payment, payment into recent bill

1. Select certain number of invoices received a few days before year end and those received a few days after year end date, carry out cut off text, ensure that liabilities are correctly recorded in the appropriate period.

ACCRUALS

                Prepare or obtain a schedule of accruals at the year end

1. Check the evidence supporting the figures

1. Ensure all accruals are includes by examination of accruals in which they normally occur

1. Enquire whether there are any actions pending against the company for which provision should be made in the accounts

1. Consider whether confirmation should be sought from the company’s solicitors

CIRCULARISATION

                Select balances at the year end and

1. prepare letters, and supervise reply

1. send second request after three months to those from whom no reply has been received

1. reconcile replies to balances on control schedule

1. prepare summary of circulerization and conclusion, there on

1. 1. HP CREDITORS, SHORT TERM LOANS

1. Obtain or prepare a schedule reconciling opening and closing position and stating the basis of accounting for interest

1. Examine new agreements, and vouch entries in ledger accounts

1. Vouch repayments during the year and note those falling into arrears

1. Obtain certificates for balances outstanding of the year end.

1. Ensure correct interest accrual at the year end.

BILLS PAYABLE

1. Prepare a schedule of bills payable at the year and

1. Ensure that correct accrual has been made for interest, and check payments in the year

1. Obtain certificate confirming bills outstanding from the banks

1. Inspects bills paid since the year end, and check entries in cash book.

DIRECTORS CURRENT ACCOUNT

1. prepare schedule showing movement in the year

1. vouch transaction with underlying documents/authorities

1. obtain confirmation of balance

CONTINGENT LIABILITIES

a.             Prepare a schedule of contingencies correlate to the previous year.  Obtain confirmation from outside agencies where necessary summarize contingent liabilities at the year end, indicating their nature.

Prepare notes for inclusion in the accounts compare with previous year.

1. 1. SOURCE DOCUMENTS AND INVESTIGATIONS RELATED TO FIXED ASSETS

THE OBJECTIVE OF THE AUDIT INVESTIGATION

                Our objective, is to form an opinion as to whether

i.              The assets are properly stated in form required by the companies act.

1. The assets are still in existence and that the company has good title to them

1. The balance of accumulated depreciation of the accounting date and the charge for depreciation for the year, are reasonable having regard to the cost of each assets, its expelled useful life and residual values, and that depreciation has been provide in accordance with the requirements of IASU

1. The additions for the year are proper capital items and that no material capital items have been charged to revenue

1. Disposal have been correctly eliminated from the accounts

1. The company’s committed and authorizes capital expenditure, are correctly stated in the notes to the accounts

1. Acceptance certificate has been obtained in respect of qualifying additions to assets

SOURCE DOCUMENTS TO BE INVESTIGATED

i.    Summary of fixed asset, cost valuation, depreciation and net book

value.

ii              Additions during the year.

iii             Disposal and transfers during the year.

Iv             Goodwill patents, trade marks

V             Fixed asset at valuation.

Vi            Asset being acquired under hire purchase agreement.

Vii           Commitments for capital expenditure.

Viii          Depreciation summary of charge in the accounts.

Ix             Summary of profits/losses on disposal of fixed assets.

1. 1. ASSETS SUMMARY.

a.             Prepare a summary of fixed assets, reconciling lost and depreciation at the beginning and end of the year.

b.             Note any assets used as security for liability.

1. ADDITIONS

1. Obtain or prepare a list of additions to fixed assets during the year, showing the date purchase and also broken into various assets categories, detailed on the summary schedule.

1. Vouch the items or reasonable percentage there of I with purchase invoice agreement / construction contract / value certificate /title, deeds, etc.

1. In respect of percentage of the above items, vouch further with capital authority  and board minutes.

1. If company erects or manufactures its own plants, ensure that capitalization of overheads is on an reasonable basis, and no profit is included-update permanent file and ensure basis is consistent.

1. Review the list of repairs and renewal expenses for items of a capital nature to addiitons for the year.

1. If total additionbs exceed N20,000, ascertain whether acceptance certificate has been obtained.

1. DISPOSAL

1. Prepare a detailed statemetn of assets sold scraped /absolute

1. Vouch sales proceeds and complete profit or loss on sales

1. Check the authorization for disposal

1. Ensure they are appropriately dealt within  the accounts and deleted from the assets register and update payment records.

1. ASSET REGISTER

1. Ascertain wether the fixed assets register is kept up to date and ensure that it contains relevant date.

1. Ensure that all additions and disposal during the year are correctly recorded.

1. EXISTENCE AT YEAR END

1. Examine title deeds or certificate of occupancy for freehold and lease hold land and buildings, or obtain certificates from bank, or other third parties Ascertain whether deeds held by third parties are for saffe custody or to esecure liabilites of the company or for some other persons.

1. Examine registration receipts, isurance, certificates and licenses of motor vehicels.

1. Reconcile assets register, if and with fixed assets schedules, and carry out test physical inspection of selected items

1. ASSET REVALUATION

1. Obtain or prepare schedule of assets revalued indicating separately, the revluation surplus on each assets.

1. Examine Board resolution adopting the resolution

1. Examiner expert report on the bais of the revaluation

1. DEPRECIATION

1. Enquire ofthere has been any change in the company’s depreciation policy since the last accounts, consisder of reasonable, and up date permanent file.

1. Prepare a statmetn of the depreciation charge for the year by fixed assets category and test as follows

i.              Compare rates with those laid down, and enquire to any variations.

1. Test calculation; and compare totals with calculation and enquire into any differnce adjsut accounts of material

1. Ensure that leases, including additions thereto, are written up over the unexpired period of the less

1. Test check individual items of depreciation to assess register where applicable.

1. Ascertain that only additions brought into use are depreciated

1. Ensure that additions are depreciated on a consistent basis example by months, six months a ravage, or on a similar basis.

1. Any charge in the company’s rates must be disclosed by way of notes in the accounts.

CAPITAL COMMITMENT

1. Obtain, or prepare a schedule of future capital expenditure, which has been committed at the balance sheet date, but not provided for in the account, distinguishing between.

i.              Amount contracted for

1. Authorized by the directors but not contracted for.

1. Vouch with orders placed, quotation accepted, and board minutes.

GENERAL INVESTIGATIONS

1. Consider in case, trading losses sustained by the company.  Some provisions should be made to write down the value of fixed assets to break up value

NB:         This point need only be considered where the company is in danger of becoming insolvent

1. Where a revaluation of fixed assets has taken during the year, consideration must be given to the taxation effect of this cross reference to section C.

1. Review insurance vale, and coverage, and consider if adequate.

1. 1. SOURCE DOCUMENTS AND INVESTIGATIONS RELATED TO CURRENT ASSETS.

OBJECTIVES OF THE AUDIT INVESTIGATION

i.              Investment as shown, represent bonafide assets to which the company has good title

1. The investments are stated as fair value and on a basis consistent with previous years

1. Disposal of investment have been properly recorded in the books on a basis consistent with previous years.

1. The income from investments has been properly accounted for

1. The information required by the companies Act concerning the valuation of lsited, and unlisted investments is correctly stated together with the other detailes required for investments which exceed certain size

1. The stated stocks and work in progress belonging to the company have been included.

1. All stocks, and work in progres belonging to the company have been included

1. Each item, or group of similar items have been properly valued at the lower of its cost and not realizable value, and acceptable basis in conformity with IAS 2, and consistent with previous years.

1. Adequate provision has been made for expected losses on long term contracts, and for defective and obsolete items of stocks.

1. All stocks held free from lien, or pledge, or whether all, or part is charged as security for liabilities.

1. The amounts shown represent genuine debts due to the company, or the prepayment of expenses and are correctly classified

1. Adequate provision has been made for all amounts receivable, whose collectable is in doubt

1. The bank balances and cash in hand are correctly stated in the accounts

1. The amount shown as a bank overdraft correctly states the company’s indebtedness to the bank at the balance sheet date

1. Proper disclosure is made of overdrafts that are secured

INVESTMENT HOLDINGS (STOCK AND SHARES)

1. Prepare a summary of opening and closing holdings:

1. Vouch all purchases, sales and bonus right issues with support documents

1. Ensure that all major additions / disposal have been authorised by the board

1. Examine share certificates, or obtain confirmantion from third parties regarding:

1. Name in which registered

1. Number of shares

1. Unit value

1. Ensure that the basis and allowing at the amount of the investment has been disclosed cost valuations / loss, etc

1. Obtain market value for quoted securities and directors valuation for unquote investments

1. Compute the gains / losses on sales, estimate tax liability on investments realized during the year and consider whether tax should be provided on unrealized gains and investments which have been revalued

DEPOSITS

1. Reconcile opening and closing positions and obtain certificates at the year end

1. Obtain passbook, or statement for the year and trace all amounts deposited and withdraw to cash book ensuring that the dates correspond

1. Where interest is added to the deposit see that the appropriate

INCOME

1. Vouch dividends received with dividends warrants counterfoils, and see that the tax is properly dealt with in the account

1. Verify that all income to which the company is entitled has been received or accounted for.

STOCK SUMMARY

a.             Obtain or prepare a summary of stocks and work on progress, subdivided into major categories, appropriate to the business as disclosed in the accounts and showing corresponding amounts for the previous years.  Prepare supporting schedule as necessary, and cross-reference to summary.  Compare summary of stocks and supporting schedule with previous year, note and enquire into any material differences in the amounts for corresponding items, or items omitted and no  explanations therefore.

SROCK TAKING-PRE-ATTENDANCE

                Ensure that adequate stock taking instructions are issued and obtains copy of written instructions for note verbal instructions.

                Verify that stock taking instrument include the noting of old, obsolete and damaged stock.

ATTENDANCE AT STOCK TAKING

Attend physical stock taking where practicable, to ensure that company’s stock taking procedure are being followed unless the engagement partner considers that stock in trade and work in progress are not material.

                Ensure that all stock belonging to third parties are clearly marked and included from count.

                Note last dispatch note and goods received, note numbers for cut-off tests complete stock attendance report.

WORK IN PROGRESS

Work in progress and finished goods-check items

1. With costing records, or calculations noting costs of material labour, and overhead recovery rates used

1. By comparison with previous year for similar items

1. By ascertaining that overhead recovery rates are consistent with earlier years and in lin with circumstances rovailing current years

1. If finished goods are valued at selling price less deductions for selling and distribution cost, check selling price with sales invoices and ensure deductions is such that no element of profit remains in the stock so valued

1. Complete “Cut off” tests for purchases in the case of raw materials, select goods recured, notes issued during last few days of the period and the first few days of the new period and see that have been dealt with in the correct period, as regards purchases and stock.  Check the stock records of available.

1. Complete cut off test for sales.  In the case of finished goods, select items dispatched on the last day of the period and the first of the period and see that they are within the correct period, as regards sales, and stock check the stock records of available.

OBSOLESCENCE

Examine stock records generally and mark items which appear to be slow moving, or obsolete and verify that adequate provisions has been made.

1. Check additions and calculations that is, test additions on stock sheets, Naira column only.

1. Check additions and summaries and agree total with balance sheet

1. Consider stock levels in relation to purchases and sales and compare these levels and the rate of overall stock turnover against the previous three to five years.

1. Compare gross profit percentage with that of previous years, and obtain explorations, for mateirals differences

1. Obtain certificate signed by charian, or managing director in a form approved by the firm.

DEBTORS AND PREPAYMENTS

                For each material item, prepare a special programme of work designed to  verify its completeness and accuracy, working papers should indicate the source verification and give such other information that will explain the nature of the item and the conclusion drawn

1. Prepare a summary of debtors and prepayments showing corresponding amount in the previous year

1. Prepare supporting schedules where necessary and cross reference to summary

1. Compare amount in current year with the previous year and enquire into material variations, or omission.

1. Obtain or prepare a list of debtors (other than sales ledger balances) and payments in advance, vouch material or unusual items with invoices, statement has been made since the year.

1. Compare ration of debtors/sales with that of the preceding year and obtain explanation for material difference

TRADE DEBTORS

1. Obtain list of sales ledger balances and check with ledger accounts check addiitons of lsit of agree total with the control account.

1. Investigate all credit balances appearing in debtors ledger

1. Mark list of balances for amounts received after year end date , scrutinize appaid account, note dates from which debts appear to the outstandiang and ensure adequate provision is made for doutful debts

1. Confirm that the client regulaly reconcile cash received with the ledger.  Make holes where round sum payments on accounts are being received and account appeas to be in arrears

1. Test additions of number of ledger accounts

1. Enquire into any unsual fluctuation in the level of discounts sales return of bad debts

OTHER DEBTORS

1. Examine cash books, subsequent to year and to ascertain if any substantial amount received after date for non routine, item example, scrap. Sales, insurance claims disposal of fixed assets, etc should be brought back into year under reviews.

1. Vouch as necessary, prepayment an other debtors balance

1. Directors account

DIRECTORS ACCOUNT

                Prepare a statement showing the amount of directors loan and  current during the year, Enquire into the circumstances of nay loans to directors

STAFF LOANS AND ADVANCES

1. Obtain or prepare a list of staff loans and advances

i.              Check that the loans granted during the year are duly authorized

1. Ensure that deductions are made in accordance with ban agreements

1. Obtain confirmation of balance

DEPOSITS

Obtain or prepare a schedule of customers deposit

i.              Enqure into the purpsoe

1. Vouch recepts into cash book and ensure proper classification in the accounts

CIRCULARIZATION

Select some balances at the year end and

1. Prepare letters and supervise mailing

1.  Send  second request after three weeks to htose from whom no reply has been received

1. reconcile replied to balances on contrlschedule

1. cosnider whether provision should be made for disputed items

1. prepare summayr of circulars and circularise related parties.

LEGAL COMPLIANCE

1. Verify whether the relevant guidelines of the production prices and income board guidelines have been complied with

1. Which audit and for accounting standards are relevant to this sectiona dn ompalins ther with

1. Any limitaitosn must be quantified and fully explained as points or accounts

1. Seniors to initial for satisfactory clearance of each review point

1. Section clearance by manager

BANK BALANCES

1. Prepare summary of bank, and cash balance at the year, obtian direct confirmation of bank balances using standard letter

1. Obtain or prepare bank reconsilliation statement, particularly for the last month of the year

1. Check that all outstanidnf lodgements at year end have been decred to bank statement after date note if there is any delay betweeen date of lodgemnt and the date decred

1. Check that all unpresented cheques have been cleared after date, or note details of any mateiral items still unpaid at date of audit.

1. Examine bank statements for dishonoured lodgement in the week folowing year end

1. Examine cash book for days preceeding and succeeding year end and verily that all cheques drawn were for normal requirements of the business.  Note all cheques drawn to replenish cahs funds, transfers between bank accounts and group companies and verify they haven been properly dealt with in both set of books

1. In case of bank overdraft, verify whether the overdraft is secured by a charge on any of the company assets and if so, note particulars on working papers.

CASH BALANCES

i.              Count all cahs balance simultaneously, with cash records to any of the account. Examine cheque stubs toensure that all cheques drawn for cash up to date of count are duly recorded and taken into consdieration

1. Ensure that no law interim of the funds, such as unclaimed are included in cash and that all cheques from employer and paybale to company are dated.  Note any undated cheques which appear to have been held for all unreasonable time.

1. Bring to attention of responsible officials of company any loss for cahs drawn by empoyees.  Note any loss which are undated or which appear to havve outstanding of an unreasonable time.

1. If cash is not counted at year end obtain certificate for balance.

1. 1. SOURCE DOCUMENT AND INVESTIGATIONS RELATED TO GROUP AND ASSOCIATE COMPANIES

THE OBJECTIVE OF THE AUDIT INVESTIGATION

                The objective is to form an opinion as to whether

i.              The investment in subsidiary companies is worth not less than book value, the cost of chares, being shown separately from loans to subsidiaries.

1. Amount due tosubsidiaries are correctly identified and stated

1. If amounts due to company subsidiaries correctly identified and

1. The aggregate amount of the company’s indebtedness to those companies of which is a subsidiary, or fellow subsidiary and the aggregate idnebtedness from these companies are fairly stated and that shares in fellow subsidiaries and the amounts owning in the form of debentures ar shown separately

1. The name of each subsidiary and associated company the country in which it is incorporated or registersd as appropriate and ahte description and proportion of the shares held are correctly stated in the noes to the account.

GROUP COMPANIES

1. prepare schedules of shares held in subsidiary companies or fellow subsidiaries and their lost or book value, reconciling opening and nosing position vouch movements during the year, inspect share certificates.

1. Prepare summary and note method of agreement of inter-group company balances.  See that balance are confirmed by letter where possible

1. Scrutinize accounts and vouch any unusual transaction

1. Check all transactions involving the transfer funds in holding/subsidiary companies books and verify that the dates correspond especially at the year end

ASSOCIATE COMPANY

1. Agree with partner and cleint which litary investments should be accounted for as associated companies

1. Prepare schedule setting oaut particulars of associated companies and reconcilling opening and closing posiiton.  Vouch movements during the year inspect share certificates

1. Prepare summary of amounts dure to /from assocaited companies.  Ontian confirmaiton of balances at year end.

1. Scrutinise current accounts and vouc an unsual transactions

1. Note large transactions involving the transfer of funds and check authority

1. Cosnider whether, in view of losses subsidiaries stained by particular subsidiaries/associate companies

Also some provision should be made in respect of

1. The book value of investment

1. Amounts due on loan or current accounts

1. 1. 1. SOURCE DOCUMENTS AND INVESTIGATIONS, RELATED

To profit and loss account

The objective of the audit investigation is to form opinion as to whetehr

1. The profits and loss account fairly states the results for the period and has been prepared on acceptable prudent basis consistent with previous years in compliance with the companies act

1. The accruals concept has been properly applied and that except for material items relating to prior year, reported revenue, costs and expenses are properly attributable to the period under reviewe and

1. Unusual, prior period items and changes in accounting policy have been presented in accordance will LAS 8

TRADING TRENDS

1. Examine the tracing and profit and less account generally

i.              Gross profit percentage

1. Items of incomes

1. Items of expenditure

1. Compare monthly sales, particularly, the last months with each other and with the corresponding months in the preceeding year and obtain explanation for any unusual flucturations

1. See tjat figures for income and expenses appear reasonable in the context of the business as or coliote

INCOME AND EXPENSES ANALYSIS

1. Obtain or prepare a schedule expalining source and composition of items which are required to be disclsosed under the requirments of the companies act or IAS’o

1. Other explanatory schedules as appropriate.

1. Scrutinize expenses accounts generally and vouch as appropriate, major items and ensure that no material items of a capital nature have been written off as expenses

AUDITORS APPOINTMENT AND FEE

1. Ensure that the provisions in the accounts is adequate to meet audit cost

1. Ensure that he agenda for next AGM includes resolutions to reappoint the auditors and to confirm or enable the directors to fix the auditore remunerations

INSURANCE

1. Ascertain whether the dient carries out a periodic review to ensure that there is adequate insurance cover over significant areas example,(major fixed Assets, stocks and loss of profits employed and public liability) taking into account current repalcement cost.

1. Update current cover and if athe client appears to be substaintially under insured

1. Consider current cover and if the cleint appears to be sustentially under insured

UNUSUALL AND PRIOR PERIOD ITEMS

Examine all unusual and prior period items and make detailsd notes of mateiral

ACCOUNTING POLICIES

1. Examine the working of the accounting policy note to ensure atha its the same with previous year

1. Accounting treatment is in conformity with the note.

1. 1. 1. SCOPE AND LIMITATION
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