Audit Program for Accrued Liabilities PDF

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Form AP 55

Index Reference__________ Audit Program for Accrued Liabilities

Legal Company Name Client:

Balance Sheet Date:

Instructions: The auditor should refer to the audit planning documentation to gain an understanding of the financial reporting system and the planned extent of testing for accrued liabilities. Modification to the auditing procedures listed below may be necessary in order to achieve the audit objectives. All audit work should be documented in attached working papers, with appropriate references noted in the right column below.

Audit Objectives

Financial Statement Assertions

Accrued liabilities reflected in the balance sheet include costs and expenses authorized, incurred, and for which benefit has been received as of the balancesheet date.

Completeness Existence or occurrence

The basis and method of accrual are reasonable and consistent with the prior period.

Valuation or allocation

Accrued liabilities are properly classified in the balance sheet and adequate disclosures made in accordance with IAS.

Presentation and disclosure

Rights and obligations

Performed By 1. Perform analytical review procedures as follows: a. Compare current-period liability amounts to priorperiod balances and investigate unusual fluctuations. b. Compare actual amounts to budgeted amounts.

Workpaper Reference

Performed By c. Review general ledger account activity and investigate any entries that appear unusual. 2. Perform the following procedures regarding accrued payroll: a. Compare amounts accrued as of the balance-sheet date to subsequent payments made. b. Trace amounts accrued in payroll records as of the balance-sheet date to amounts recorded in the general ledger. c. Compare wages and payroll taxes per the payroll tax returns to the general ledger. d. Review compensation agreements for potential additional liabilities. 3. If the accumulated but unused annual leave is material to the overall financial statements, perform the following procedures: a. Examine client policy, personnel manuals, or other supporting documentation (e.g., union contracts) to determine the related policies. b. On a test basis, recompute the client’s calculation of accumulated but unused annual leave and determine overall reasonableness of the accrual recorded as of the balance-sheet date. 4. If amounts owed to employees for other benefits (use of flats, vehicles, etc.) is material to the overall financial statements, perform the following: a. Obtain from the client and review a copy of the agreement that specifies the nature, amount and timing of benefits that the employee will receive. b. On a test basis, recompute the client’s calculation of other benefits owed to employees and determine the overall reasonableness of the accrual recorded as of the balance sheet date.

Workpaper Reference

Performed By 5. If deferred income and other deferred credits are material to the overall financial statements, perform the following procedures: a. Obtain an understanding of the nature of the account and the client’s policy and method of accounting.

b. Test computations of the current year activity (i.e., additions and reductions) by examining supporting documents or by applying analytical procedures to related revenue and expense accounts.

c. Determine if the method of amortization is consistent with the prior year.

d. Determine if the deferred credit balance at the balancesheet date is reasonable.

6. Perform the following procedures regarding income taxes payable: a. Obtain or prepare a schedule reconciling pretax accounting income to taxable income, identifying separately: • Permanent differences • Timing differences originating and/or reversing during the year. b. Recompute the client’s calculation of income tax currently payable, using the current tax rate times the amount of taxable income determined in the schedule obtained in step (a) and compare to the client’s tax statement. Confirm current tax payable with the tax office. c. Obtain or prepare a schedule calculating the tax provision for the year (income taxes currently payable + required adjustments to the deferred tax account) in accordance with IAS 12. 7. For liabilities denominated in a foreign currency, verify that related Mongolian taxes (required to be paid when a

Workpaper Reference

Performed By liability is settled in a foreign currency) have also been accrued. 8. If the auditor is concerned about the risk of fraud, audit procedures such as the following should be considered in addition to the ones listed above: a. Search for large or abnormal year-end adjustments.

b. Confirm accrued liabilities with outside third parties.

c. Perform detail analyses of expense accruals and trace and vouch activity in the account.

d. Analyze historical trends in accruals and related expense accounts.

e. For payroll, perform the following: (1) Observe payroll distributions. (2) Scrutinize payroll records for employees with little or no deductions from their payroll. (3) Review personnel files for compensation rates. (4) Test payroll calculations and deductions. (5) Confirm amounts paid to employees who are at remote locations working without direct supervision. (6) Examine payroll disbursements subsequent to year-end and compare with accrued payroll at the balance-sheet date. (7) Scrutinize the payroll registers for unusual items such as: names of former employees; duplicate names, duplicate addresses; unusual pay rates; unusual number of hours worked; for two different people.

Workpaper Reference

Performed By 10. If other accrued liabilities are material to the overall financial statements, perform the following: a. Review the client’s calculation of the accrual and determine the reasonableness of basis, method, and amount of accrual. b. Compare accrual amount to payments made subsequent to the balance-sheet date, if applicable, for reasonableness. c. Reconcile amounts accrued in the current period to the related expense general ledger control account. 11. Based on the results of the search for unrecorded liabilities, determine if any additional accruals should be made as of the balance-sheet date.

Based on the procedures performed and the results obtained, it is my opinion that the objectives listed in this audit program have been achieved.

Performed by

Date

Reviewed and approved by

Date

Conclusions:

Comments:

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