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AUDIT OF LIABILITIES AND CAPITAL [Compare total payables (trend), compare payable days (ratio);
*review post y/e cash payment; ^ reconcile SS; perform TPCL;
1 PAYABLES and ACCRUALS (TP) purchase cut-off test]

Substantive procedures:
• Compare the total trade payables and list of accruals against prior year and
investigate any significant difference

• Calculate the trade payables days and compare to prior years and investigate any
significant difference

• Select a sample of post year-end payments from the cash book; if they relate to
the current year, follow through to the purchase ledger or accruals listing to
ensure they are recorded in the correct period

• ^ Obtain supplier statement and reconcile these to the purchase ledger balances,
and investigate any reconciling items

• Select a sample of payable balances and perform a trade payables’ circularisation

follow up any non-replies and any reconciling items between the balance
confirmed and the trade payables’ balance

• Select a sample of GRNs before the year end and after the year end and follow
through to inclusion in the correct period’s payables balance, to ensure correct
cut-off (purchase / GRN cut-off test)

2 ACCRUALS (eg: accrual for income tax paybale on employment income - MJ18 Q16(c))
Substantive procedures:
• Compare the accrual to the prior year and investigate any significant differences
Recalculate
• Re-perform the calculation of the accrual to confirm accuracy and discuss any
unexpected variances with management

• Agree the year-end accrual to the general ledger and payroll records to confirm
accuracy
cash
• Agree the subsequent payment to the post year-end cash book and bank statements
to confirm completeness

• Review any disclosures made of the accrual and assess whether these are in
compliance with accounting standards and legislation.

3 NON-CURRENT LIABILITIES (eg: long-term loan, loan repayable more than 1 year)
Substantive procedures:

2 • Obtain a schedule of opening and closing loans detailing any changes during the
year. Cast the schedule to confirm its accuracy and agree the closing balances to
the trial balance and draft financial statements.
(schedule - the name of lender, date of loan, maturity date, interest date, interest rate, balance
at end of period, security)
1
 • For the new loan taken out in the year, review the loan agreement to confirm the
amount borrowed, the repayment terms and the interest rate applicable. (terms)

3 • For any loan payments made during the year, agree the payments to the cash book
and bank statements.

Bank confirmation letter (BCL)

1 • Obtain direct confirmation at the year-end from the loan provider of the
outstanding balances and any security provided. Agree confirmed amounts to the
loans schedule.

4 • Review all loan agreements for details of covenants and recalculate all covenants to
identify any potential or actual breaches.

• Review bank correspondence to identify whether any late payment penalties have
been levied and agree these have been charged to profit or loss account as a finance
charge.

• Review the disclosure of non-current liabilities in the draft statements, including any
security provided and assess whether these are in accordance with accounting
standards and local legislation. Additionally, confirm that the split of current and
non-current loans in the financial statement is correct.
(recognised as liability)
4 PROVISIONS AND CONTINGENCIES (disclosure)
Substantive procedures:
and agree accuracy and
• Obtain a breakdown of the provision and cast it to ensure completeness and agree
to trial balance

• Recalculate the breakdown to confirm completeness and agree components of the

calculation to supporting documentation

• Review the board minutes to ascertain existence, nature of claim ,and whether it is
probable that the payments will be paid and possible future claims
Letter of Inquiry (LOI)
• Send an inquiry letter to lawyer to obtain their views as to the probability of the
claim being successful and potential future claims

• Review the post year-end cash book to identify whether any payments have been
made, compare actual payments to the amounts provided to assess whether the
provision is reasonable

• Obtain a written representation from management to confirm the completeness

of the provision

2
 • Review the disclosure of the provision to ensure compliance with IAS 37
Provisions, Contingent Liabilities and Contingent assets

Rare 5 ACCOUNTING ESTIMATES (eg: allowances for doubtful debts)

Substantive procedures:
• Enquire of with management how the accounting estimate is made and the data
on which is based

• Review the method of measurement used and assess the reasonableness of

assumptions made

• Develop an expectation of the possible estimate or a range of amounts to evaluate

management’s estimate

• Review the judgment and decisions made by management in the making of

accounting estimates to identify whether there are indicators of possible
management bias

• Review subsequent events which confirm the estimate made

• Obtain written representations from management to confirm significant

assumptions used in accounting estimates are reasonable

6 CAPITAL
Issuance of shares
Substantive procedures:

• Review board minutes to confirm the issue of additional share capital during the
year

• Agree the issue of shares is permitted from a review of any statutory constitution
agreements in place
(statutory documents)

• Confirm cash or other consideration has been received or receivables is included

as called-up share capital not paid

• Inspect the cash book and bank statements for evidence of cash receipts from the
share issue [Agree cash receipts from share issue to Cash Book & Bank Statement to confirm
completeness

• Recalculate the split of proceeds between the nominal value of shares and
premium on issue and agree correctly recorded within share premium account

• Review the disclosure of the share issue in the draft financial statements and
ensure it is in line with relevant accounting standards and local legislation

3
7 DIRECTOR’S REMUNERATIONS / BONUS
Substantive procedures:
• Obtain a schedule of the directors’ remuneration, split by salary and bonus paid
and cast the schedule to ensure accuracy. Agree the amount to that disclosed in
/ agree to G/L, TB & F/S
the financial statements

• Agree a sample of the individual monthly salary payments and the bonus payment
to the payroll records

• Confirm the amount of each bonus paid post year-end by agreeing to the cash
book and bank statements. [Agree bonus payment post y/e to CB & BS to confirm Completeness

• Agree the amounts paid to each director to board minutes and contracts to ensure
the amounts included in the current year financial statements are fully accrued and
disclosed.
Review after date payments from cash book, to see whether it relate to current yr to confirm completeness
of yr end liability to confirm
• Obtain a written representation from management confirming the completeness
of directors’ remuneration including the bonus.

• Review the disclosures made regarding the bonus paid to directors and assess
whether these are in compliance with local legislation
* can use at
audit responds

Recalculate bonus payment and agree to criteria in director's service contracts to ensure accuracy
Review amount of each bonus paid post yr end to cash book and bank ensure accuracy