1a) Existence means
that assets, assets, and equity interests (capital and reserves) are physically
present or belong to the entity on the reporting date.
b) Ownership means that
whether the company has lawful claim to the fixed assets to its balance sheet,
done by examining the documents or deeds for proof of ownership, also review
lease agreement to make sure that any capitalised leases are included on the
balance sheet and any operating leases are not.
c) Valuation means that all items have been
included in the financial statements at appropriate amounts according to
company policy and relevant financial reporting (like impairments) have been
and financial and other information is disclosed fairly and at appropriate
amounts.
2. Procedures external
auditor may adopt to verify assets and liabilities.
For assets examine the title deeds of
immovable properties for example buildings.Ensure that immovable property have been
properly classified and disclosed.Where documents of tittle relating to
assets held are available for inspection, a certificate should be obtained from
the agent the agent or any other part holding the document.Ascertain the certificate has been
obtained unequivocally that they are free from any charge or encumbrance.For example building check that the
building have been valued at cost less depreciation if any revaluation has
taken place see the basis of revaluation and ensure that the disclosure has
been made. See that the relevant
particulars of buildings have been entered in the fixed assets record
maintained by client.For liabilities the auditor can review
internal control on liabilities as regards its generation, storage and disposal
and see whether it was properly followed at every stage.Ascertain whether the organisation is
maintaining reasonable records for sale of disposable materials. See
that all material sold have been billed and check the calculations of the
invoices.Ensure that there exists a proper
procedure to identify the material and good quality material is not mixed up
with junk material.Make an overall assessment of the value
of realisation from the sale of junk material as to its reasonableness. Ensure
that proper accounting has been done for it.
3. Objectives for
carrying out substantive procedures on the following
Sales and receipts,
To ensure the completeness of revenue, to ensure
cut-off have been correctly applied. Another objective is check existence of
accounts receivable which are
authentic obligations owed by customers at the balance date through
confirmation, test from debtors subsidiary ledger to supporting
documentation of sale (invoice, delivery
note) and subsequent receipts review.To check valuation of accounts
receivable is presented at a reliable estimate of the net realisable amount
through review of aged trial balance, analytical procedures and subsequent
receipts review.
b) Purchases and
payments, the objective for the substantive procedures is to test for bank
reconciliation, to test decrial accuracy of bank reconciliation and scanning of
cash receipts and cash payment journal.
c) Payroll, the main
objectives for carrying out substantive procedures are as follows
To ensure that employees are only paid
for work done.To ensure that wages are only paid to
valid employees.To ensure that wages are paid at the
correct rates of pay.To ensure that wages are correctly
calculated. To ensure all wages transactions are
correctly recorded in the books of accounts.To ensure that all payroll deductions
are paid over to appropriate third parties.
d) Fixed assets, the
main objective for carrying out substantive procedures are as follows
To ensure that the reported fixed assets
is free of material accounting errors.To uncover invalid asset transactions,
to uncover non-compliant assets valuation.To uncover incorrect assets
classification.Use the understanding of client and its
environment to consider inherent risk including fraud risks related to
property, plant and equipment. Obtain an internal understanding of
internal control over property and equipment Determine that the client has rights to
recorded property, to establish proper valuation or allocation of property.To determine that the disclosure and
presentation of property is correct. To assess the risk of material misstatement
and design tests of control and substantive procedures that establishes the
completeness of recorded property and substantiates the existence of property,
plant and equipment.