W-AP - Administration and Selling Expenses

8/10/2019 W-AP - Administration and Selling Expenses

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W/AP

AUDIT PROGRAMCLIENT: _____________________________________

PERIOD: _____________________________________

SUBJECT: ADMINISTRATION AND SELLING EXPENSES

Est.Hrs

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Phase/

Level Procedures!PRe". B#

Co$$e%ts!E&'()%)t*o%s

AUDIT OBJECTIVES

To determine whether:

A. All expenses are properly authorized, recorded andrepresent all amounts incurred by the entity during the

period for business purposes.

B. All expenses are properly described and classified,

and adequate disclosures with respect to theseamounts have been made in the financial statements.

. !xpenses incurred during the year were in accordance

with the ob"ects of the ompany.

SUBSTANTIVE PROCEDURES

1. Overall Analyt!al Reve"

#.# $sing a %B &%repared By lient' &e.g., top trials,lead schedule, or company trial balance' compare

individual account balances with those of the prior

year, and with current year budget &if available', and

obtain explanation for any unusual or significantvariations. (cope ) (ample: *s. ++++++++++ %lus

unusual items.

#. -ave the client prepare a schedule listing significantexpenditures under appropriate heads.

#. /btain and compare the cost centre wise periodical

expenses with the preceding period and investigate

unusual fluctuations.

#.0 1ocument the sampling rationale, which should berepresentative both in terms of value and volume of

transactions.

#.2 !nsure that recovery of expenses has been separately

shown as a deduction from total expenses.

#.3 ompare analytical review for expenses and income

at interim date with yearend position for ma"or

changes and their reasons.

#. Payr$ll E%&ense

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.# /btain a %B which compares each significant

category of employee compensation &per the payroll

register' and significant payroll4related expenses &by

month between years'. 5nclude calculation of averagepayroll per full4time equivalents of employees. 6erify

the clerical accuracy of the analysis.

. Trace selected amounts to the payroll register and to

prior year wor7ing papers other than those tested in

payroll cycle. &(cope ) (ample: ++++++++++.'

. 5nvestigate significant fluctuations in amounts.

onsider whether they may be indicative of potential

cut4off problems.

.0 (can the payroll register for unusual balances oramounts.

.2 5f the department4wise figure of an expense account is

not equal to the balance of the account, obtain an

explanation of the nature and approximate amounts ofthe other categories of entries that have affected the

account balance.

.3 ompute the ratios of material amounts of fringe

benefits to the total compensation earned by coveredemployees or other data. *elate to the comparable

ratios for the preceding period and investigate

significant or unusual fluctuations.

.8 5f not performed in compliance phase, select a sample

of employees from the payroll register..9 5nspect time cards or other records to support hours

wor7ed ) attendance record.

. 5nspect wage ) salary authorization or agreements tosupport the rates paid.

.#; 5nspect authorization forms to support amounts

withheld.

.## 5nspect personal files for appropriate documentationand evidence for the existence of employees.

.# Test the calculations of net pay and the clerical

accuracy of payroll register cumulative amounts.

.# 5nspect board minutes for approval of slab increments,and bonus awarded.

.#0 hec7 deduction of


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'. Travelln( an) Entertan*ent

.# -ave the client prepare a schedule of such expenses as

per =irms (tandard =orm (chedule43 and tie up thetotal of such schedule with >eneral ?edger.

. ompare current period total of such expenses with

the corresponding prior period amount and investigate

reasons for significant fluctuations.

. $nderstand, document and evaluate the entity@s

internal control policies and procedures for

authorizing, executing and recording such expenses.

.0 Based on the above assessment and considering theris7 factors from the planning phase, determine and

document the scope for selecting transactions for

verification.

.2 =or transactions selected as above, ensure that these

were:

Authorised by the appropriate level of authority

5n accordance with the entity@s policies, rules

and limits

=or the purpose of business

%roperly supported by bills of travel agents,

boarding passes, tic7et "ac7ets and expense

summaries ) reports Based on reasonable)comparable rates and

6erified by the entity@s internal audit department,

where applicable.

+. Rent, Rates an) Ta%es

0.# -ave the client prepare a schedule of such expenses asper =irms (tandard (chedule and tie up the total of

such expenses with >eneral ?edger.

0. ompare current period total of such expenses withthe corresponding prior period amount and investigate


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0. *eview all significant rent agreements and note:

The respective expiry) maturity dates

The provisions for renewal of agreement

Amount of deposit

Amount of rent and the period of payment

*ent escalation clauses and

Any other significant restrictions or obligations

of the entity.

0.0 $nderstand, document and evaluate the entity@s


authorizing, executing and recording rent, rates and

taxes.0.2 Based on the above assessment and considering the

ris7 factors from the planning phase, determine and

document the scope for selecting payments forverification.

0.3 =or payments selected as above, ensure that these

were:


5n accordance with the rent agreement and


where applicable.

0.8 !nsure that proper accrual ) ad"ustment for such

expenses have been made at period end.

-. C$**n!at$n an) Utltes

2.# -ave the client prepare a month4wise analysis of such

expenses and tie up the total of such analysis with

>eneral ?edger.

2. ompare current period total of such expenses with



2. $nderstand, document and evaluate the entity@s

internal control policies and procedures forauthorizing, executing and recording such expenses.

2.0 $se =irm@s (tandard (chedule for performing

predictive test for such expenses.

2.2 Based on the above assessments and considering theris7 factors from the planning phase, determine and

document the scope for selecting transactions for

detailed verification.

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2.3 =or transactions selected as above, ensure that these

were:


%roperly supported by bills ) invoices and other

relevant documents

=or business purposes and


where applicable.

2.8 /btain list of telecommunication, electricity and gas

connections and ensure that all bills relating thereto

have been duly accounted for.

2.9 !nsure that proper accrual for such expenses havebeen made at period end.

. Le(al an) Pr$0ess$nal E%&enses

3.# -ave the client prepare a schedule of all legal and

professional expenses incurred during the period

showing:

The name of lawyer )tax advisor or other

consultant

A description of professional services

rendered to the entity and

The amount of professional fee ) charges.

Tie up the total of such schedule with the >eneral?edger.




internal control policies and procedures forauthorizing, executing and recording such expenses.

3.0 Based on the schedule of legal and professional

expenses, ensure that all expenses were:

Authorized by the appropriate level of authority

%roperly supported by bills ) invoices and other

relevant documents



where applicable.

3.2 ross4reference the names of legal advisors and tax

consultants as appearing in the schedule of legal andprofessional expenses with the respective

confirmation control sheets.

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3.3 !nsure that proper accrual for such expenses have

been made at period end.

3.8 ?in7 the cases reported by the solicitors in their

respective responses to the contingencies and

commitments and quantify the impact, if any, ifpossible.

. Re&ars an) 2antenan!e

8.# -ave the client prepare a schedule of such expenses as

per =irms (tandard (chedule and tie up the total of






authorising, executing and recording such expenses.

8.0 Based on the above assessments and considering the


document the scope for selecting transactions fordetailed verification.


were:

Authorised by the appropriate level of

authority

%roperly supported by bills ) invoices and

other relevant documents


6erified by the entity@s internal audit

department, where applicable.

8.3 *eview all significant service and maintenancecontracts and note:

The respective expiry) maturity dates.

The provisions for renewal of contract.

Amount of service charges and the period of

payment.

!scalation clauses. Any other significant terms.

8.8 !nsure that repairs and maintenance of a capital

nature are appropriately accounted for in accordance

with the company@s policy.

8.9 !nsure that proper accrual for such expenses havebeen made at period end.

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3. A)vertsn( an) Sales Pr$*$t$n

9.# -ave the client prepare a schedule of all such

expenses incurred during the period showing:

The name of the advertising agency or other

payee

A description of the nature of expense and

The amount of expense.

Tie up the total of such schedule with the >eneral

?edger.



9. /btain from the entity@s mar7eting department, the

details of the advertising and promotional pro"ects )activities during the period and compare them with

the recorded amount of advertising and promotional

expenses.

9.0 $nderstand, document and evaluate the entity@sinternal control policies and procedures for

authorizing, executing and recording such expenses.

9.2 Based on the above assessment and considering the

ris7 factors from the planning phase, determine anddocument the scope for selecting transactions for

verification.


were:


5n accordance with the entity@s policies, rules,

budgets and limits

=or the purpose of business

%roperly supported by bills) invoices, release

orders, transmission certificate and in case of

print media, copies of published advertisementand


where applicable.9.8 !nsure that advertising and sales promotion of capital

nature is properly accounted for.

9.9 !nsure that proper accrual for such expenses have

been made at period end.

4. 5el an) P$"er

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.# -ave the client prepare a quantitative schedule of

fuel ) gas consumption during the period and cross4

refer it from the inventory portion, if applicable.

. (elect a sample of fuel purchases during the period

and ensure that:

These are supported by properly authorized

%urchase /rders, >oods *eceiving *eport,

uality 5nspection *eport and other internaldocuments

The invoices ) bills are in accordance with the

agreement with vendor, if any and

The purchases are accounted for upon receipt of

goods and in the relevant period.

. ompare current period consumption and expenses

with the corresponding prior period figures and

investigate reasons for significant fluctuations.

.0 Analyse the relationship between fuel consumption

and production and consider performing appropriate

predictive tests.

.2 onsider the implications of sales tax in case of selfgeneration of power ) electricity.

16. Insran!e

#;.# -ave the client prepare a schedule of such expenses asper =irms (tandard schedule and tie up the total of


#;. ompare current period total of such expenses withthe corresponding prior period amount and investigate


#;. *eview all significant insurance policies and note:

Cature of policy and sum insured

Amount of premium and the period of

payment

The respective expiry) maturity dates

The provisions for renewal of policy and

Any other significant restrictions or

obligations of the entity.#;.0 $nderstand, document and evaluate the entity@s


authorizing, executing and recording insurance

expense.

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#;.2 Based on the above assessment and considering the


document the scope for selecting payments for

verification.

#;.3 =or payments selected as above, ensure that thesewere:

Authorised by the appropriate level of

authority

5n accordance with the policy and

6erified by the entity@s internal audit

department, where applicable.

#;.8 !nsure that proper accrual ) ad"ustments for suchexpenses have been made at period end, particularly

the wor7ings relating to prepaid portion of such

expenses are adequate.

#;.9 ross match the assets insurance as per policy withthe assets appearing in the boo7s of the company.

%erform test of insurance to ensure adequacy of

insurance coverage and determine the amount of

over ) under insurance.

11. 5ee an) S7s!r&t$n

##.# -ave the client prepare a schedule of such expenses as

per =irms (tandard (chedule and tie up the total of suchexpenses with >eneral ?edger.

##. ompare current period total of such expenses with the

corresponding prior period amount and investigate


##. (elect a sample of such payments and ensure that thesewere:

%roperly authorized


(upported by invoices ) bills and other relevant

documents.

##.0 !nsure that proper accrual ) ad"ustments for such

expenses have been made at period end andprepayments, if any, are properly classified.

1#. O&eratn( Leases

#.# /btain copies of new or revised operating lease

agreements and update the %ermanent =ile accordingly.

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PERIOD: _____________________________________


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!xamine the lease documents and determine

whether they are properly executed. !nsure that

lease transactions were properly authorized by

reference to the minutes.

*eview the terms of new or revised operating lease

agreements and determine whether 5A(4#8

requires capitalization of the lease.

#. -ave the client prepare a summary schedule of operatingleases, including the following information for each

significant lease &leases with other related parties should

be set forth separately':

1escription of the leased property and significant

terms of the lease agreement

*entals and sublease rentals included in the income

statements for the current and preceding periods.

Accrued and ) or prepaid rent as of the beginning

and end of the current period

*equired future minimum rental payments by year

for each of the succeeding five years and in total

for subsequent periods.

#. 6erify the clerical accuracy of the schedule and traceamounts for the preceding period to the prior period@s

wor7ing papers.#.0 %redict rent expense and compare predicted amounts

with recorded amounts. 5nvestigate differences in excessof tolerable error.

#.2 ompare rent expense with prior period end and

budgeted or pro"ected balances. 5nvestigate differences in

excess of tolerable error.

#.3 *eview lease expense for unusual items, new or

modified leases, etc.

#.8 *ecalculate accrual for rent expense as straight line rent

expense less rental payments made and cross4referenceexpense to the income statement and accrual )

prepayment to the balance sheet.

1'. 8eneral an) Other E%&enses

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PERIOD: _____________________________________


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#.# (elect a sample of cash disbursements made during the

year from the cash disbursements "ournal.

(cope:

1isbursements over *s. ++++++++++ to provide

++++++++++D coverage and)or

*epresentative sample of ++++++++++

disbursements.

#. 5f statistical sampling is used, indicate:

(tatistical method ++++++++++

ompliance level ++++++++++ D

Tolerable error ++++++++++

#. *eview supporting documents &e.g., invoices, receivingreports, cheques' to determine proper account

classification.

#.0 Eudgmentally select ++++++++++ month&s' and trace thepayments to the account distribution report and then to

posting in the general ledger. *eview the general ledger

for other entries to the account.

#.2 =or "udgmental ) mathematical or statistical sampling

application, pro"ect sample results to entire population.alculate li7ely error and post ad"ustment to %AE!

&%roposed Ad"usting Eournal !ntries' sheet if appropriate.

#.3 !nsure that all the purchases ) services acquired inforeign currencies are translated using exchange rate

prevailing at the date of transaction &a rate thatapproximates the actual rate for example, wee7ly )

monthly average is also acceptable'.

#.8 (elect a sample of source documents &e.g. receivingreports, vendors invoices etc.' relating to other operating

expenses incurred during the period. 1etermine whether

these transactions were properly recorded during the

period.

#.9 ross4reference the provision for doubtful accounts to

the test of adequacy of the allowance for doubtful

accounts in the audit of receivables.

#. ross4reference depreciation, depletion and amortizationexpense and the impairment loss to the tests performed in

the audit of property, plant and equipment.#.#; ross reference warranty expense to the analysis ofaccrual for warranty costs in the audit of accrued

liabilities.

#.## =or each significant other expense account not tested in

other areas of the wor7ing papers, have the client prepare

an analysis of the cumulative balance. 6erify the clericalaccuracy of the analysis and examine critical forms and

documents.

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1+. Ta% C$*&lan!e

#0.# 5n each area of expenses, while verifying disbursements,

also ensure deduction of tax at source under (ection #0to #23 of the 5ncome Tax /rdinance, ;;#.

#0. =urther ensure that all the disbursements are made

through cross4cheques ) ban7ing channels unlessotherwise allowed by Tax ?aws. !ven then consider its

materiality in internal control perspective.

1-. DIRECTORS, C9IE5 E:ECUTIVE O55ICERS ;CEOeneral ?edger

#2. ompare current period total of such remuneration with



#2. *eview the Femorandum and Articles of Association of

the ompany and ascertain the approving authority for

the remuneration of 1irectors and !/.

#2.0 *eview minutes of the meeting of Board of 1irectors )(hareholders so as to ascertain the approved remuneration

and any changes made during the period.

#2.2 *eview form GAH and note the existing number ofdirectors. Also review their consent and appointment

procedures including election of directors.

#2.3 1iscuss with the client about the executive and non4

executive directors and lin7 the conclusion with the

remuneration being paid to the directors &number of1irectors and their names'. Approval in this regard should

be sought.

#2.8 (canning and verification of payroll as to authenticity of

remuneration.

#2.9 !nsure that proper disclosure of !/, 1irectors and

!xecutives remuneration is given in the financial

statements in accordance with the requirements of =ourthand =ifth (chedules to the ompanies /rdinance, #90

and information duly referred.

#2. /btain copy of G(ervices ontractH of the !/ and

1irector, if any, and compare it with the salary.

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PERIOD: _____________________________________


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1.AUDITORS= RE2UNERATION

#3.# !nsure that (tandard


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Other tests as )ee*e) ne!essary

2ana(e*ent Letter

%repare management letter points including: 5nternal control wea7nesses

Business improvement opportunities

?egal non4compliance

Accounting system deficiencies and

!rrors and irregularities not material at the

financial statements level.

Ds!l$sre

!nsure appropriate disclosure have been made in

accordance with the reporting framewor7 and fillrelevant portion of =inancial (tatement 1isclosure

hec7list &=(1?'.

S&ervs$n, reve" an) !$n!ls$n

#. %erform (enior review and supervision.

. *esolve (enior review points.

. *esolve %artner and Fanager review points.

0. onclude response to the audit ob"ectives.

A)t !$n!ls$n

Based on the substantive test procedures, 5)we performed as outlined above, it is my)our opinion that the audit ob"ectives set forth atthe beginning of this audit program have been achieved, except as follows:

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++++++++++++++ +++++++++++ ++++++++ +++++++Date?@@@@@@@@@@@@ S(natre J$7 In!har(e 2ana(er Partner

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W-AP - Administration and Selling Expenses

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Transcript of W-AP - Administration and Selling Expenses