Local Govt-Audit Manual

REPUBLIC OF ZAMBIA
Ministry of Local Government and Housing Local Government Audit Manual
February 2007
Final
TABLE OF CONTENTS
FOREWORD.............................................................................................................................11 LIST OF ACRONYMS ..............................................................................................................12 CHAPTER 1 INTRODUCTION AND BACKGROUND INFORMATION..............................14 1.1 1.2 1.3 INTRODUCTION ..........................................................................................................14 BACKGROUND INFORMATION.................................................................................14 STRUCTURE OF THE MANUAL ................................................................................14 EXECUTIVE SUMMARY..............................................................................16
CHAPTER 2 2.1
INTRODUCTION ..........................................................................................................16
CHAPTER 3 AUDIT OF PLANNING ....................................................................................19 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 INTRODUCTION ..........................................................................................................19 PLANNING RESPONSIBILITIES ................................................................................20 TIMING CONSIDERATIONS .......................................................................................21 PREPARATORY WORK..............................................................................................22 INHERENT RISK ASSESSMENT................................................................................24 PLANNING PROCEDURES ........................................................................................24 CONTROL RISK ASSESSMENT ................................................................................24 ANALYTICAL PROCEDURES ....................................................................................24 SMALLER AUDIT DIFFERENCES..............................................................................24 JOINT AUDIT ENGAGEMENTS..................................................................................25
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Local Government Audit Manual
Final 3.11 3.12 INFORMATION TECHNOLOGY CONSIDERATIONS ...............................................25 PLANNING DOCUMENTS...........................................................................................26
CHAPTER 4 AUDIT FIELD WORK ......................................................................................28 4.1 4.2 4.3 4.4 4.5 4.6 INTRODUCTION ..........................................................................................................28 EXECUTION OF AUDIT PROGRAMMES...................................................................28 COLLECTION OF AUDIT EVIDENCE.........................................................................28 ANALYSIS OF AUDIT EVIDENCE..............................................................................28 DOCUMENTATION OF AUDIT....................................................................................29 MAKING AUDIT CONCLUSIONS ...............................................................................29
CHAPTER 5 AUDIT OF REVENUE......................................................................................30 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11 PROFESSIONAL AND REGULATORY PRONOUNCEMENTS ................................30 ELEMENTS OF AUDIT AREA.....................................................................................30 AUDIT OBJECTIVE .....................................................................................................31 CRITICAL ASSERTIONS ............................................................................................32 EXISTENCE OR OCCURRENCE................................................................................32 COMPLETENESS ........................................................................................................32 CUT-OFF ......................................................................................................................32 RIGHTS AND OBLIGATIONS .....................................................................................32 VALUATION .................................................................................................................33 PRESENTATION AND DISCLOSURE........................................................................33 RELEVANCE AND IMPORTANCE OF ASSERTIONS ..............................................34
Final 5.12 5.13 AUDIT OBJECTIVE .....................................................................................................35 AUDIT STEPS ..............................................................................................................35
CHAPTER 6 AUDIT OF SALARIES AND PERSONAL EMOLUMENTS ...........................40 6.1 6.2 6.3 6.4 6.5 PROFESSIONAL AND REGULATORY PRONOUNCEMENTS ................................40 ELEMENTS OF AUDIT AREA.....................................................................................41 AUDIT OBJECTIVE .....................................................................................................41 CRITICAL ASSERTIONS ............................................................................................41 AUDIT STEPS ..............................................................................................................42
CHAPTER 7 PROCUREMENT OF GOODS AND SERVICES............................................45 7.1 7.2 7.3 7.4 7.5 PROFESSIONAL AND REGULATORY PRONOUNCEMENTS ................................45 ELEMENTS OF AUDIT AREA.....................................................................................45 AUDIT OBJECTIVE .....................................................................................................45 CRITICAL ASSERTIONS ............................................................................................45 AUDIT STEPS ..............................................................................................................46
CHAPTER 8 AUDIT OF STORES AND STOCKS ...............................................................47 8.1 8.2 8.3 8.4 8.5 8.6 PROFESSIONAL AND REGULATORY PRONOUNCEMENTS ................................47 ELEMENTS OF AUDIT AREA.....................................................................................47 AUDIT OBJECTIVE .....................................................................................................48 CRITICAL ASSERTIONS ............................................................................................48 AUDIT STEPS ..............................................................................................................48 ATTENDANCE AT PHYSICAL INVENTORY COUNTING.........................................48
Final CHAPTER 9 AUDIT OF CASH AND BANK ........................................................................51 9.1 9.2 9.3 9.4 9.5 PROFESSIONAL AND REGULATORY PRONOUNCEMENTS ................................51 ELEMENTS OF AUDIT AREA.....................................................................................51 AUDIT OBJECTIVE .....................................................................................................51 CRITICAL ASSERTIONS ............................................................................................51 AUDIT STEPS ..............................................................................................................52
CHAPTER 10 GRANTS AND OTHER PAYMENTS............................................................55 10.1 10.2 10.3 10.4 10.5. PROFESSIONAL AND REGULATORY PRONOUNCEMENTS ................................55 ELEMENTS OF AUDIT AREA.....................................................................................55 AUDIT OBJECTIVE .....................................................................................................55 CRITICAL ASSERTIONS ............................................................................................56 AUDIT STEPS ..............................................................................................................56
CHAPTER 11 AUDIT OF LOANS .........................................................................................60 11.1 11.2 11.3 11.4 11.5 PROFESSIONAL AND REGULATORY PRONOUNCEMENTS ................................60 ELEMENTS OF AUDIT AREA.....................................................................................60 AUDIT OBJECTIVE .....................................................................................................60 CRITICAL ASSERTIONS ............................................................................................60 AUDIT STEPS ..............................................................................................................61 AUDIT OF INVESTMENTS ........................................................................63
CHAPTER 12 12.1
PROFESSIONAL AND REGULATORY PRONOUNCEMENTS ................................63
Final 12.2 12.3 12.4 12.5 ELEMENTS OF AUDIT AREA.....................................................................................63 AUDIT OBJECTIVE .....................................................................................................63 CRITICAL ASSERTIONS ............................................................................................63 AUDIT STEPS ..............................................................................................................64
CHAPTER 13 AUDIT OF STATUTORY OBLIGATIONS ....................................................65 13.1 13.2 13.3 13.4 13.5 RELEVANT PROFESSIONAL AND REGULATORY PRONOUNCEMENTS ...........65 ELEMENTS OF AUDIT AREA.....................................................................................65 AUDIT OBJECTIVE .....................................................................................................65 CRITICAL ASSERTIONS ............................................................................................65 AUDIT STEPS ..............................................................................................................65
CHAPTER 14 AUDIT OF COMMERCIAL VENTURES .......................................................67 14.1 14.2 14.3 14.4 14.5 PROFESSIONAL AND REGULATORY PRONOUNCEMENTS ................................67 ELEMENTS OF AUDIT AREA.....................................................................................67 AUDIT OBJECTIVE .....................................................................................................67 CRITICAL ASSERTIONS ............................................................................................67 AUDIT STEPS ..............................................................................................................68
CHAPTER 15 AUDIT OF COUNCIL PROCEEDINGS ........................................................69 15.1 15.2 15.3 15.4 15.5 PROFESSIONAL AND REGULATORY PRONOUNCEMENTS ................................69 ELEMENTS OF AUDIT AREA.....................................................................................69 AUDIT OBJECTIVE .....................................................................................................69 CRITICAL ASSERTIONS ............................................................................................69 AUDIT STEPS ..............................................................................................................70
Final CHAPTER 16 AUDIT OF FINANCIAL STATEMENTS........................................................71 16.1 16.2 16.3 16.4 16.5 PROFESSIONAL AND REGULATORY PRONOUNCEMENTS PROVISIONS ........71 ELEMENTS OF AUDIT AREA.....................................................................................73 AUDIT OBJECTIVE .....................................................................................................73 CRITICAL ASSERTIONS ............................................................................................74 AUDIT STEPS ..............................................................................................................74
CHAPTER 17 FIXED ASSETS .............................................................................................75 17.1 17.2 17.3 17.4 17.5 PROFESSIONAL AND REGULATORY PRONOUNCEMENTS ................................75 ELEMENTS OF AUDIT AREA.....................................................................................75 AUDIT OBJECTIVE .....................................................................................................75 CRITICAL ASSERTIONS ............................................................................................75 AUDIT STEPS ..............................................................................................................76
CHAPTER 18DEBTORS........................................................................................................79 18.1 18.2 18.3 18.4 18.5 PROFESSIONAL AND REGULATORY PRONOUNCEMENTS ................................79 ELEMENTS OF AUDIT AREA.....................................................................................79 AUDIT OBJECTIVE .....................................................................................................79 CRITICAL ASSERTIONS ............................................................................................79 AUDIT STEPS ..............................................................................................................80
CHAPTER 19 AUDIT OF CREDITORS................................................................................84 19.1 19.2 PROFESSIONAL AND REGULATORY PRONOUNCEMENTS ................................84 ELEMENTS OF AUDIT AREA.....................................................................................84
Final 19.3 19.4 19.5 AUDIT OBJECTIVE .....................................................................................................84 CRITICAL ASSERTIONS ............................................................................................84 AUDIT STEPS ..............................................................................................................85
CHAPTER 20 INSPECTIONS...............................................................................................87 20.1 20.2 20.3 20.4 20.5 RELEVANT PROFESSIONAL AND REGULATORY PRONOUNCEMENTS ...........87 ELEMENTS OF AUDIT AREA.....................................................................................87 AUDIT OBJECTIVE .....................................................................................................87 CRITICAL ASSERTIONS. ...........................................................................................87 AUDIT STEPS ..............................................................................................................87
CHAPTER 21 VALUE FOR MONEY....................................................................................88 21.1 21.2 21.3 21.4 21.5 22.1 22.2 22.3 22.4 22.5 PROFESSIONAL AND REGULATORY PRONOUNCEMENTS ................................88 ELEMENTS OF AUDIT AREA.....................................................................................88 AUDIT OBJECTIVE .....................................................................................................88 CRITICAL ASSERTIONS ............................................................................................88 AUDIT STEPS ..............................................................................................................89 PROFESSIONAL AND REGULATORY PRONOUNCEMENTS ................................91 ELEMENTS OF AUDIT AREA.....................................................................................91 AUDIT OBJECTIVE .....................................................................................................91 CRITICAL ASSERTIONS ............................................................................................91 AUDIT STEPS ..............................................................................................................92
CHAPTER 23 CONCLUDING PROCEDURES....................................................................94
Final CHAPTER 24 REPORTING..................................................................................................99 24.1 24.2 24.3 24.4 24.5 24.6 24.7 24.8 24.9 INTRODUCTION ..........................................................................................................99 DEFINITIONS ...............................................................................................................99 THE AUDITORS REPORT........................................................................................100 ELEMENTS OF THE AUDITORS REPORT.............................................................101 STANDARD REPORT................................................................................................104 MODIFIED REPORTS................................................................................................105 COMPARATIVE FINANCIAL STATEMENTS...........................................................106 OTHER AUDITORS ...................................................................................................107 PRIOR PERIOD FINANCIAL STATEMENTS NOT AUDITED .................................108
24.10 SUBSEQUENT EVENTS ...........................................................................................108 24.11 FACTS DISCOVERED AFTER THE FINANCIAL STATEMENTS HAVE BEEN ISSUED.......................................................................................................................109 24.12 OFFERING OF SECURITIES TO THE PUBLIC .......................................................109 24.13 OTHER INFORMATION.............................................................................................109 24.14 MATERIAL INCONSISTENCIES...............................................................................109 24.15 MATERIAL MISSTATEMENTS OF FACT ................................................................110 24.16 REPORT TO MANAGEMENT ...................................................................................110 24.17 RECORD KEEPING ...................................................................................................110 24.18 ACTION TAKEN ON AUDIT REPORTS ...................................................................110 24.19 PREPARATION OF THE MINISTERS EXECUTIVE REPORTS.............................111 24.20 EXIT MEETINGS ........................................................................................................111
Final CHAPTER 25 INTERNAL AUDIT.......................................................................................112 25.1 25.2 25.3 25.4 25.5 25.6 25.7 25.8 25.9 INTRODUCTION ........................................................................................................112 DEFINITION................................................................................................................112 FUNCTIONS OF LOCAL GOVERNMENT INTERNAL AUDITORS ........................112 PLANNING INTERNAL AUDIT WORK.....................................................................113 INTERNAL VS. EXTERNAL AUDIT ..........................................................................113 INDEPENDENCE AND REPORTING .......................................................................113 ROLE AND OBJECTIVES.........................................................................................114 STANDARDS ............................................................................................................114 RELATIONSHIPS .......................................................................................................114
CHAPTER 26 CONCLUSION.............................................................................................116 APPENDIX I SPECIMEN AUDIT PLANNING MEMORANDUM (APM)............................117 APPENDIX II SPECIMEN AUDIT PROGRAMME..............................................................119 APPENDIX III SPECIMEN INCOME AND EXPENDITURE STATEMENT .......................124 APPENDIX IV SPECIMEN BALANCE SHEET..................................................................125 APPENDIX V SPECIMEN TRADING, PROFIT AND LOSS ACCOUNTS ........................126 APPENDIX VI SPECIMEN CASHFLOW STATEMENT - INDIRECT METHOD.............127 APPENDIX VII SPECIMEN EXIT MEETING FORM ..........................................................128 APPENDIX VIII GLOSSARY OF TERMS...........................................................................129
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FOREWORD
The Government of the Republic of Zambia is committed to advancement of integrity, accountability and transparency in the management of public affairs in order to promote democratic governance.
The Ministry of Local Government and Housing recognises the importance of Auditing as a tool for ensuring integrity, accountability and transparency in the management of local government and delivery of services by Councils established under the Local Government Act (Cap 281 of The Laws of Zambia.) In this regard the Ministry has revised and updated the Local Government Audit Manual, which was first published in 1965. The revision of the Manual was made possible with support from the Japan International Cooperation Agency (JICA). The Revised and Standardised Manual is expected to be followed by all auditors appointed to audit any Council under the provisions of the Local Government Act. Auditors and supporting auditing staff in the Councils will be expected to use the Manual as a basis for their work. It is expected that development of auditing capacity will also contribute to cost-effective utilisation of the scarce resources available to Local Government to enable it deliver services to the people in a responsive and responsible manner.
Hon Sylvia T Masebo, MP MINISTER OF LOCAL GOVERNMENT AND HOUSING
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List of Acronyms
AAWP AGO APM CAF CAF CDF CIPFA CIPFA ECSAFA GAAP IAS IFAC IFRS INTOSAI IPAS ISAs IT JICA LA LGA LGAZ MLGH MoU Annual Audit Work Plans Auditor Generals Office Audit Planning Memorandum Current Audit File Current Audit File Constituency Development Fund Chartered Institute of Public Finance and Accountancy Chartered Institute of Public Financial Accountants East, Central and Southern African Federation of Accountants Generally Accepted Accounting Principles International Accounting Standards International Financial Accounting Council International Financial Reporting Standards International Organisation of Supreme Auditing Institutions International Public Sector Accounting Standards International Standards on Accounting Information Technology Japan International Cooperation Agency Local Authority Local Government Act Local Government Association of Zambia Ministry of Local Government and Housing Memorandum of Understanding
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PAF PLGO PS QoERs TA VfM ZICA ZMK
Permanent Audit File Provincial Local Government Office Permanent Secretary Quality of Expenditure Reviews Technical Assistance Value for Money Zambia Institute of Chartered Accountants Zambian Kwacha
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CHAPTER 1 INTRODUCTION AND BACKGROUND INFORMATION

1.1 INTRODUCTION This manual is a revision and modernization of the first ever Local Government Audit Manual which was developed in 1965. The revision of the 1965 Audit Manual was necessitated by the need to reflect best practice in the execution of Local Government audits The purpose of the Manual is to offer practical guidance to Local Government auditors and Private sector auditors that are contracted to audit Local Authorities (LA) in Zambia. The manual is designed to meet the requirements of both Internal and External Auditors. 1.2 BACKGROUND INFORMATION This Manual has been modernized using the 1965 version as the basis. In modernizing the Manual we took cognizance of relevant IFRS, IASs, IPSASs and the INTOSAI Auditing Standards which are an adaptation of ISAs as published by IFAC and ECSAFA. To this end the following institutions and institution websites played a critical role in the sourcing of information for the development of this manual: a) b) c) d) e) f) 1.3 INTOSAI; IFAC; ECSAFA; AGO ZICA; and MLGH
STRUCTURE OF THE MANUAL This manual is structured into three parts constituting the three major audit phases: a) b) c) Part I Part II Part III Audit planning; Audit Field Work; and Reporting
The Manual is not exhaustive and therefore should not stifle the auditors use of initiative and professional judgment in the execution of their duties. The Manual provides a framework and should remain dynamic to new developments in auditing and accounting. The MLGH should therefore strive to periodically update the Manual when need arises. Auditing planning can be categorized in two broad levels: a) b) level 1 level 2 Inherent Risk Assessment; Council Business Environment appreciation/(understanding).
Audit field work comprises all the work that an auditor carries out while in the council premises.
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Final Reporting involves the communication of an auditors opinion of a Councils financial statements based on the analysis of the audit evidence gathered during the audit fieldwork.
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CHAPTER 2
2.1 INTRODUCTION
EXECUTIVE SUMMARY
This Chapter presents an overview of a generic audit methodology which should be adaptable for the audit of LAs in Zambia. This generic methodology is designed to achieve objectives of an audit in an efficient manner while providing a platform for an informed basis for offering constructive best practice advice. Although the generic methodology is the same regardless of the size of a Council, the procedures to be used and the extent of work to be performed will vary considerably for each Council. This generic methodology is an inference of the provisions of ISA. Understand & Document Knowledge of a Council
N a tu re o f th e C o u n cil O b je ctive s & S tra te g ie s P e rfo rm a n ce M e a su re s G o ve rn m e n t R e g u la to ry & O th e r E xte rn a l F a cto rs In te rn a l C o n tro l A ctivitie s - L e ve l C o n tro ls
D e ve lo p E xp e cta tio n s & P e rfo rm A n a lytics
P e rfo rm In q u irie s, o b se rva tio n s & W a lk T h ro u g h s (a s n e ce ssa ry)
E va lu a te D e sig n E ffe ctive n e ss o f In te rn a l C o n tro ls
A sse ss A p p lica b ility o f In h e re n t R is k In d ica to rs
Id e n tify R isks o f M issta te m e n t O th e r F in a n cia l S ta te m e n t R isk A re a s "C ritica l" A sse rtio n s "N o t C ritica l" A sse rtio n s
Ta ilo re d P ro ce d u re s
In te rn a l C o n tro l D e sig n e d E ffe ctive ly?
N O - "B " o r "C " P ro ce d u re s
"D " o r N o P ro ce d u re s
Ye s Id e n tity a n d Te st G o v e rn a n ce a n d A ctivitie s - L e ve l K e y In te rn a l C o n tro ls
Ye s
K e y C o n tro ls O p e ra tin g E ffe ctive ly?
No
"A " o r "B " P ro ce d u re s
Ta ilo re d S u b sta n tive P ro c e d u re s
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Key A B C D Procedures are mostly analytical procedures Procedures involve usage of basic substantive procedures Procedures entail execution of comprehensive testing Procedures entail detailed testing of audit evidence.
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PART I - PRE-AUDIT
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CHAPTER 3 AUDIT OF PLANNING

Summary
Audit planning involves developing an appropriate overall audit strategy. This Chapter discusses the various audit planning aspects that need to be considered. The importance of effective planning cannot be overemphasized. It is absolutely vital in the decentralization era in which Local Authorities (LAs now operate that Auditors have an audit approach that appropriately meets professional standards, but does not cause to over audit. The audit team is expected to devote appropriate time and attention to the planning process. 3.1 INTRODUCTION All audits need to be adequately planned. The need to plan exists regardless of the size and complexity of the LA. However, the extent of audit procedures that need to be performed will be affected by factors such as: a) b) c) d) the nature of the engagement; the size and complexity of the financial statements; past experiences with the LA; and the specific terms of the engagement.
The importance of effective planning cannot be over emphasized. All members of the audit team are expected to contribute to this objective. Planning identifies the work to be done, by whom and when. The main objectives of planning are to: a) b) c) d) e) establish the audit strategy; help direct and control the audit work; ensure appropriate attention to important aspects of the audit; make the most effective use of available staff (this is essential to maximize audit efficiency); and ensure the work is completed efficiently.
One of the key planning decisions is the determination of critical and not critical assertions. If this determination is not made properly, auditors could be applying the wrong audit strategy with a possible ineffective or inefficient audit. Reference to the audit "planning stage" (i.e., the time before substantial fieldwork starts, when information is gathered about the LA and design of an audit strategy), actually continues throughout the audit. For example: a) b) c) auditors plan throughout the audit to accommodate changes in the LAs size, the economic environment and in professional pronouncements, Local Government regulations, etc; during fieldwork, there may be changes to planned procedures because of unexpected circumstances; at the end of fieldwork, a list is made as part of work papers of that which needs to be considered in the following period, while they are still fresh in the auditors mind.
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Final 3.2 PLANNING RESPONSIBILITIES As a minimum, a typical audit team will comprise: a) b) c) d) final supervising officer; in-charge auditor; audit team members; and where applicable, a specialist.
The final supervising officer is responsible for initiating the planning process. He retains overall responsibility for the audit plan. The supervising officer is responsible for the entire audit assignment. He supervises the entire audit team and also responsible for quality control. The supervising officer participates in the planning process to ensure that the audit plan properly addresses the risks associated with the engagement. The Auditor-in-Charge is responsible for executing the audit plan. He is in charge of the day to day audit field work of the audit team members. Especially in first-time audits or where the in-charge auditor is new to the particular engagement, it might be more efficient for other audit team members to participate in the detailed planning. The audit team members are responsible for various aspects of the fieldwork. A team member may be assigned one or more audit field work area such as audit of: a) b) c) revenue; payroll; and cash.
Within the constraints of the particular engagement discussed above, the auditor in-charge is generally responsible for the direct supervision of the planning. The audit supervising officer should be involved throughout the planning process and should approve the audit plan, after ensuring that planning objectives are accomplished and documented. Regardless of who performs the detailed planning work, because of its importance, sufficient time should be allotted to the planning process, including appropriate time and attention by the audit supervising officer. Specialists, if any, need to be involved as early in the process as possible. For example, a professional with specialized computer audit knowledge may need to be involved to assist the audit team in understanding the complexity of an automated accounting system, designing appropriate audit strategies and testing of internal controls, if members of the audit team do not already have the background and experience to do this.
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Final 3.3 TIMING CONSIDERATIONS Effective planning enables auditors to organize audits in a way that ensures auditors perform work in accordance with professional standards within reasonable time limits. Generally, such planning should be performed as early as possible. The following considerations contribute significantly to this objective: a) prepare the overall engagement plan well in advance of the time when the current year's fieldwork is to be started. This allows for individual job planning and maximum utilization of available staff time; b) audit planning should usually take place prior to the financial statement date (before December). For most audits, planning should start no later than the close of the third quarter of the fiscal year. (However, planning for audits of many smaller LAs might be later in the year, and for some, just prior to the start of substantive fieldwork.) c) emphasize those investigative and analytical auditing approaches that will help perform an audit more efficiently. This type of knowledge results in far more effective auditing than can be accomplished through a vast volume of detailed work; d) where permitted by professional standards, ensure that the auditor appropriately consider accounting and other non-audit work (e.g., preparing or reviewing tax analyses) when determining the extent of audit work for particular assertions; e) assign new personnel to the engagement to provide them with opportunities for learning and to permit the in-charge auditor to develop supervisory capabilities. Effective utilization of personnel increases the flexibility in staff scheduling and lessens unproductive time; f) consider the availability of LA personnel to prepare schedules and other mechanical assistance in relation to the LAs normal operating demands for such personnel; and
g) arrange for a qualified technical specialist personnel to perform computer controls reviews and develop any necessary computer-assisted audit procedures for interim or final work. Regardless of the intended approach, certain planning procedures can always be done during the non-busy season. These include: a) meeting with the Council officials to develop a better knowledge and appreciation of the Councils business; b) updating documentation of the LAs accounting system and control procedures (and performing tests of controls, when necessary); and c) consider likely areas of LA advisory comments and other similar communications. Procedures such as confirming understanding of the accounting system and internal control, including walk-through tests, can be performed shortly after other planning procedures. The results of planning help determine the nature, timing and extent of substantive audit procedures, and the identification of any additional work that can be performed prior to year end.
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Final 3.4 PREPARATORY WORK Discussions with the Council Usually, auditors should have preparatory discussions with the Councils to enable them update their knowledge of the council operations and to develop preliminary audit strategy. These discussions should be held as early as practicable before the fieldwork begins or early in the planning stage. The audit supervising officer should ordinarily be involved. A meeting should generally be held with the council to make necessary arrangements for the conduct of the engagement and to assist in gaining knowledge of the council's business. The agenda of this meeting should include: a) b) updating knowledge of the councils operations; identifying matters and events that occurred during the year that could influence the audit approach or the councils financial statements; c) d) e) f) identifying specific laws and regulations, or changes in such, that might directly affect the financial statements; defining the scope of the engagement, including any known restrictions or limitations; arranging for necessary records (e.g., electronic data files) for use during the audit; ascertaining a tentative timetable, including inventory observations and council locations to be visited; g) h) i) reviewing prior year, and, if available, interim reports to establish current year needs and to identify format changes; reviewing new professional pronouncements expected to be applicable; gathering information to assist in assessing the risk of misstatements resulting from errors or fraud; j) k) l) m) n) maximizing use of council personnel; reviewing the manner in which and to whom any advisory comments will be delivered (for example, will the report be written or oral); determining if any additional reports are necessary for presentation to Council or the audit committee (for example, a formal audit plan); establishing physical work-space requirements for each phase of the work; appointing a member of the councils staff to act as the audit contact person with auditors; and o) existence and work of internal auditors.
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Final Appointment letter An appointment letter should be obtained to document understanding of the terms of the engagement with the council. The appointing authority is contained in section 52 of the Local Government Act while the scope of an ordinary Council audit is covered under sections 53 to 55 of the Local Government Act. Planning Meeting A planning meeting should be held with the key staff to be involved in the audit and key staff from other departments in the Council. The meeting should be held very early in the planning process.
Other Preparatory Work In addition to preparatory discussions with the council and among members of the audit team as discussed above, the audit team should also talk to other partners and staff of the Council who have done work for the Council during the year and may also wish to talk to key staff involved in the previous year's audit. This may help identify matters that auditors should be aware of, or suggestions for performing the work more efficiently. A brief review of the previous year's work papers should also be carried out to make sure that points noted in the previous year are adequately covered in the planning. The correspondence file should also be reviewed to make sure that knowledge about the Council and its business is up-to-date. In addition to the above procedures, the audit team should scan the prior years work papers and correspondence with the Council during the year, noting any significant matters that will affect the audit. Staff Scheduling Staff scheduling is an important aspect of planning. While the scheduling process may differ depending on the size of the office, effective scheduling recognizes the exercise of judgment in choosing among alternatives that may affect the assignment of staff. The following factors should be considered: a) b) c) d) e) f) g) h) i) j) engagement size and complexity; matching of council and staff personalities; personnel availability; efficient conduct of the engagement; continuity and periodic rotation of audit personnel; special expertise; opportunities for on-the-job training; circumstances where questions about independence or conflicts of interest might be raised; ability to perform the work within a reasonable period of time; and involvement of supervisory personnel.
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3.5
INHERENT RISK ASSESSMENT
Inherent Risk Assessment concentrates on the environment in which the Council operates and the risks posed by the engagement in assessing inherent risk. This encompasses general and industry economic trends, the interrelationship between the Council's business and its industry, its management, the fraud factors and many other factors that impact on audit risk. This, in turn, focuses on the early identification and consideration of critical assertions; the nature of internal control (including assessments of control risk) and the council personnel involved in critical assertions; situations that have caused financial statement difficulties in the past; and other similar factors.
3.6
PLANNING PROCEDURES
Understanding the Councils Business Knowledge of the Council's business is a key element of Inherent Risk Assessment. This knowledge also assists in providing the audits with other important services. Audit planning should first be directed toward updating (or, in an initial audit, gathering) the information on files about the Councils business and operations that will enable to enhance professional relationship with the Council. 3.7 CONTROL RISK ASSESSMENT
Assessing control risk is the process of evaluating the effectiveness of the internal control process to prevent or detect material misstatements in the financial statements. During planning, auditors assess control risk for critical assertions. 3.8 ANALYTICAL PROCEDURES
Analytical procedures at the planning stage are used as attention-directing procedures, to highlight areas of concern or where problems may be expected. The types of procedures that may be used at this stage are considered in more details later. 3.9 SMALLER AUDIT DIFFERENCES
The audit team may determine an amount below which audit differences need not be included on the Summary of Unrecorded Misstatements
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Final 3.10 JOINT AUDIT ENGAGEMENTS
Public Auditors occasionally participate in joint audit engagements with other auditors. For this purpose, a joint audit is defined as one where two or more teams work together on an audit and produce an audit report signed by both. Such engagements may be authorized when it is believed they may lead to a long-term relationship or to other long-term benefits. 3.11 INFORMATION TECHNOLOGY CONSIDERATIONS Information Technology (IT) governance controls should be designed and operate effectively if we plan to perform tests of automated controls at the activities level. The extent of involvement of a professional with specialized computer audit knowledge will depend on the complexity of IT used in the significant transaction cycles, control risk assessments and the IT skills available in the audit team. The role of this specialist should be to assist the audit team in the following areas: a) b) c) d) e) documenting IT controls; evaluating the design effectiveness of IT controls; designing and implementing tests of controls and substantive tests related to IT, including the use of computer-assisted audit techniques (caats); interpreting the test results; and preparing comments for the management letter.
When a computer audit specialist is used, the audit team's responsibility for the IT aspects of an audit cannot be transferred to that specialist. The audit team is responsible for: a) b) c) d) e) determining, in consultation with the computer audit specialist, the objectives of the review of IT and the procedures to be performed; participating appropriately in performing the work; reviewing the results of the specialist's work; evaluating the results of their work and determining how it will affect audit risk, audit strategy and tailoring appropriate audit; and ensuring that the work papers adequately document all IT aspects of the engagement.
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Final 3.12 PLANNING DOCUMENTS
The planning process is usually evidenced by the production of the following planning documents: a) b) c) d) audit planning memorandum; audit work plan; time budget; and audit programme.
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PART II - AUDIT FIELD WORK
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CHAPTER 4 AUDIT FIELD WORK

4.1 INTRODUCTION
The audit field work commences when the audit team goes out in the field. The audit team moves physically onto Council premises and commences the actual fieldwork. The fieldwork should cover the following: a) b) c) d) e) 4.2 execution of audit programmes; collection of audit evidence; analyzing the audit evidence; documenting audit work; and making audit conclusions.
EXECUTION OF AUDIT PROGRAMMES Execution of audit programmes involves the implementation by an auditor of all audit steps that are contained in an audit programme. An example of an Audit Programme is included at Appendix II to this Manual.
4.3
COLLECTION OF AUDIT EVIDENCE
Collection of audit evidence involves extraction of such explanation and documentation from management of a council as to back particular steps of an audit programme. The evidence obtained may take the following forms: a) b) c) d) e) f) 4.4 source documents; management representations; previous audit reports (internal and external); council minutes; trend analyses interpretations; and collaborative inferences
ANALYSIS OF AUDIT EVIDENCE
This entails interpretation of data and information in the light of the actual audit test undertaken. The analysis may entail comparing analytical review tests with already developed expectations and seeking explanations for the variances or deviations from expected norms.
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Final 4.5 DOCUMENTATION OF AUDIT
An audit can only be relied upon if it is properly documented. All audit work undertaken should thus be documented through the generation of audit work papers. These work papers should in turn be properly cross-referenced to the source of the information or audit evidence. Various marks are adopted in this regard as references which should be supported by an appropriate key. 4.6 MAKING AUDIT CONCLUSIONS
At the end of each work paper an auditor should make informed conclusions based on the work undertaken and the evidence gathered. Audit conclusions can only reliably be drawn once the evidence gathered is: a) b) c) d) sufficient; appropriate; relevant; and reasonable
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Final
CHAPTER 5 AUDIT OF REVENUE

5.1 PROFESSIONAL AND REGULATORY PRONOUNCEMENTS
IAS 18 prescribes when to recognise revenue, including sale of goods, provision of services, and entitlement to interest, royalties and dividends. Other standards deal with particular revenues. Revenue is recognised when it is probable that benefits will flow to the Council and these benefits can be measured reliably. For sales of goods, this is when: a) significant risks and rewards of ownership have been transferred to the buyer, and b) the Council has neither continuing managerial involvement nor effective control over the goods. For services, revenue is recognised when work is performed. This is commonly referred to as the percentage of completion method. When the outcome of a service contract cannot be estimated reliably, revenue is recognised only to the extent of expenses that are recoverable. Interest is recognised on a time proportion basis, at the effective yield on the asset. Dividends are recognised when the shareholder has the right to receive payment. Revenue is measured at the fair value of the consideration received or receivable by the Council on its own account. It does not include amounts collected on behalf of third parties. When receipt of cash is deferred, the nominal consideration is split between sales revenue and interest revenue. An exchange of goods or services for similar items does not generate revenue. An exchange for dissimilar items generates revenue measured at the fair value of the goods or services received. 5.2 ELEMENTS OF AUDIT AREA
A Councils revenue system typically comprises the following revenue lines although the mix however varies from one LA to another: a) b) c) owners rates; ground rent ( from improved statutory housing areas); levies include but are not restricted to the following: personal levy; street vending fish charcoal grain parking bus station
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Final d) e) f) g) h) i) j) k) government grants; fees and charges; market fees; community income; engineering income; medical fees; health permits; and trading licences: 5.3 retail wholesale liquor scrap metal hawkers peddlers stall restricted agent fees etc
AUDIT OBJECTIVE
To verify whether: a) all billable council revenue lines have been billed; b) all revenue due to Council is collected; c) all income/revenues collected are properly brought to account by receipting, recording in the cashbook, deposited in the correct bank account without delay; d) the figures are posted to the appropriate ledgers and final accounts; e) the procedures for the security, collection, receipting and recording of all cash are adequate and in accordance with procedures; and f) the system is adequate, in order that the postings to the relevant accounts will be carried out correctly and promptly.
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Final 5.4 CRITICAL ASSERTIONS Assertions are the fundamental assumptions that management of a Council use as a basis for the preparations of financial statements. The assertions are broadly categorized as follows: a) b) c) d) e) f) 5.5 existence or occurrence completeness ; cut-off ; rights and obligations ; valuation on allocation (Gross or net) ; and presentation and disclosure .
EXISTENCE OR OCCURRENCE
Assertions about existence or occurrence deal with whether assets or liabilities exist at a given date (referred to as existence), and whether recorded transactions have in fact occurred during a given period (referred to as occurrence). The audit of the existence and occurrence assertions is essentially concerned with establishing that balances within transaction cycles are not overstated. 5.6 COMPLETENESS
Assertions about completeness deal with whether all balances and transactions that should be presented in the financial statements are properly recorded. The audit of the completeness assertion is essentially concerned with establishing that balances within transaction cycles are not understated. 5.7 CUT-OFF
Assertions about cut-off deal with whether all assets, liabilities, income and expenses are reported in the appropriate period. Cut-off is a separate assertion because the substantive procedures to verify it are typically different from those applied to the other components of completeness. 5.8 RIGHTS AND OBLIGATIONS
Assertions about rights and obligations deal with whether assets are the rights of the client (i.e., whether the client has ownership and title to assets) and liabilities represent all the clients obligations at a given date. These assertions relate to whether the client was, in actuality, party to a transaction, and whether the transaction was for valid business purposes. Rights and obligations assertions may in many cases be inseparable from the existence and completeness assertions, and do not normally require separate audit attention. However, where a client deals with assets, liabilities or transactions pertaining to other parties, this may not be so. For example, audit procedures will normally establish that all cash receipts are completely accounted. However, for clients who handle cash on behalf of other parties, there is need to establish not only that receipts are completely accounted, but also that cash receipts that properly relate to clients have not been accounted for as relating to the other parties.
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Final
5.9
VALUATION
Assertions about valuation deal with whether assets and liabilities have been included in financial statements at appropriate amounts. The valuation assertion for asset and liability accounts can be subdivided into gross and net. Valuation gross deals with the recorded cost amounts and valuation net deals with whether assets and liabilities can be recovered (liquidated) at their stated value. These assertions are separated because the substantive procedures to verify valuation gross are typically different from those used to verify valuation net. 5.10 PRESENTATION AND DISCLOSURE
Assertions about presentation and disclosure deal with whether particular items in the financial statements are properly classified, described and disclosed. Presentation and disclosure assertions are considered during the course of the audit by procedures that call for gathering information that is necessary to determine that disclosures are complete. In addition, many firms use a financial statement disclosure checklist, generally completed at the conclusion of the audit, to assist in determining that disclosures are complete. The presentation and disclosure guidelines may vary considerably from country to country. The audit implications of assertions can be summarized as follows: Assertion Existence or Occurrence Completeness Cut-off Rights and Obligations Balance Sheet Do recorded assets and recorded liabilities exist? Have all assets and liabilities been recorded? Are all assets and liabilities recorded in the appropriate period? Does the client own the recorded assets? Are the liabilities attributable to the client recorded? Are amounts attributed to the assets and liabilities appropriately valued? Can assets (liabilities) be recovered (liquidated) at their stated value? Income Statement Did recorded transactions occur? Have all income and expenses been recorded? Have all income and expenses been recorded in the appropriate period? Was the client really a party to the transactions, and were they for valid business purposes? Have income and expenses been measured appropriately?
Valuation: Gross Net
Have income and expense been measured appropriately? Presentation and Disclosure Have the assets and liabilities been Have income and expense been properly presented and disclosed? properly presented and disclosed? To further illustrate, consider the following comparison of various financial statement assertions, the related audit objectives and sample procedures in the B approach to achieve such objectives: Assertion Existence or Occurrence Completeness Cut-off Audit Objectives Existence of debtors. A liability has been recorded for all purchases. Sales are recorded in the proper period. Audit Procedures Confirmation of accounts receivable balances. Review unmatched receiving reports and unprocessed invoices. Review sales records for a period before
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Final
Rights and Obligations
Cash in bank is held in accounts and not subject to restrictions.
and after year-end. Confirm arrangements directly with an appropriate official of the financial institution. Examine appropriate supporting invoices or other documentation for additions. Review and evaluate aging of debtors to evaluate adequacy of allowance for doubtful accounts. Inquire of the client's management and lawyers concerning litigation claims and assessments.
Valuation: Gross Net
Fixed assets are appropriately recorded at acquisition cost. Debtors are stated at net realizable value. Appropriate disclosure of loss contingencies not required to be accrued.
Presentation and Disclosure
5.11
RELEVANCE AND IMPORTANCE OF ASSERTIONS Audit procedures are selected to provide evidence supporting the assertions contained in the financial statements. However, there is not a one-to-one relationship between these assertions and our procedures. Some procedures may relate to more than one assertion and some assertions may require more than one procedure. Not every assertion is relevant to every audit cycle. For example, the presentation and disclosure assertion may not be relevant to the operating expenses cycle.
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Final 5.12 AUDIT OBJECTIVE
For purposes of auditing the revenue cycle of the Council the following assertions are considered critical: Completeness Validity Measurement Occurrence/Cut off Classification All collectable revenues have been collected, recorded and banked All the recorded revenues pertain to relevant activities and are real All revenues have been recorded correctly All transactions are recorded in the period in which they occurred. All revenues have been correctly described and recorded in the books of accounts. All computation, payments and recordings have been made in compliance with rules and regulations and best practice.
Regularity
5.13
AUDIT STEPS 1 Test the castings of levies subsidiary ledgers and agree the total with the general ledger control Select a sample of levies and other revenue source documents and trace them to the recorded transactions: a) b) c) d) e) f) 3 select a representative sample from the population; trace each sample item to the recorded transaction (i.e levies journal); evaluate the results of the sample; depending on the evaluation results, you may need to increase the sample size; discuss exceptions with appropriate council personnel; and record the projected error on the summary of unrecorded misstatements.
Test cutoff procedures at the end of the prior period. a) inquire of billings and accounting personnel as to the cutoff procedures employed at the end of the prior period. b) review levies journal for a reasonable period prior and subsequent to the end of the prior period, investigate any unusual entries, and document the period covered. c) investigate large and unusual levies transactions that occurred near the close of the prior period.
Verify the appropriate cutoff of levies: a) obtain last levies invoice number;
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Final b) ascertain whether the last levies invoice number was included in the current periods recorded levies; and ascertain that the subsequent levies invoice numbers are included in the subsequent periods recorded levies.
c) 5
Scan the levies records for the last business day of the year for large or unusual entries and verify that they were recorded in the proper period.
Review the levies and other revenue recognition policies for appropriateness and consistency with the prior year, giving particular attention to: a) effects of new levy types and other changing circumstances; and b) one time or unusual transactions.
7 8 9
Consider whether transactions may be occurring between the Council and related parties that are not being given appropriate accounting treatment. Consider whether balances or transactions that are large or unusual indicate the existence of a previously undisclosed related party. Obtain or prepare a schedule of levies revenue by month in sufficient detail (e.g., by levies type) and perform the following procedures: a) b) c) d) e) develop expectations and acceptance ranges; compare recorded values to expectations; identify significant deviations from the expectations; discuss deviations with appropriate Council personnel; and consider plausibility of responses and corroborate explanations and responses where appropriate.
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Final 10 Confirm all receivable balances or transactions over an agreed value ZMK using positive confirmations (coverage should be at least 80% of population value). a) b) c) d) e) identify accounts using predetermined amounts or criteria; prepare confirmations; send second requests to non-responding customers; for non-responding customers, perform alternative audit procedures; and if differences are reported on returned confirmations, document follow-up procedures and results. 11 12 discuss unresolved difference with appropriate Council personnel; and carry audit differences to summary of Unrecorded Misstatements work paper
Scan the levies journal for significant levies revenue transactions after the confirmation date and trace to supporting documentation. Compare the following ratios to prior periods and to expectations: a) b) levies debtors/current assets; and levies debtors/total assets.
13
Scan the levies revenue accounts in the general ledger for large or otherwise unusual entries: a) b) c) d) large amounts recorded at or near year end; large volume of transactions at or near year end; unusual posting sources; and large journal entries at or near year end.
14
If unusual or complex transactions have been identified, inquire of individuals outside of the accounting department who initiate or process such transactions about the following: a) b) c) existence or suspicion of fraud; undisclosed side agreements; and Activities or directives by management that are out of the ordinary.
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Final
15
Test the levies values: a) b) select 60 items from the file or listing levies; and verify the listed values with appropriate council personnel and statutory instrument.
16
Test the allowance for doubtful accounts by: a) Test the aging of levies receivable subsidiary records: b) obtain an aging by customer of accounts receivable; and trace relevant documentation on levies and payment activity to verify that levies debtors have been properly aged.
Identify customers that potentially post a credit risk: customers with significant past due accounts customers whose credit situation has declined during the year by comparing the aging Levies Debtors by significant customer to that existing at a previous period (e.g.; last year). customers where significant amounts were written off during the year.
c) d) e) f) g)
review identified customers with appropriate council personnel; review experience of recoveries of accounts previously written-off; develop an estimate (or range) of the allowance for doubtful accounts; with appropriate council personnel; discuss estimate (or range) of the allowance for doubtful accounts with appropriate council personnel; and if any, carry to the summary of unrecorded misstatements the appropriate amount between estimate (or range) and the recorded amount.
h) 17 18 19
Determine subsequent payment of past due accounts by examining remittance advices, bank deposit slips and bank statements. Scan the accounting records for write-offs and other credits to accounts receivable subsequent to the reporting period and determine whether adjustments are required. Examine write-offs and other credits to accounts receivable subsequent to the confirmation date and trace supporting documentation for authorization and appropriateness. Examine accounts written-off during the year for authorization and appropriateness
20
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Final 21 Compare the following ratios to prior periods and to expectations: a) b) c) allowance for doubtful accounts/accounts receivable; bad debt expense/levies; and average levies receivable collection period.
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Final
CHAPTER 6 AUDIT OF SALARIES AND PERSONAL EMOLUMENTS

IAS 19 prescribes the accounting treatment of and disclosure of employee benefits by employers. IAS 19 does not deal with measurement or recognition as expenses of benefits based on, or in the form of, equity instruments (Employee Share Option Plans). The accounting treatment for sharebased payments is discussed in IFRS 2 Share-based Payment. Employee benefits are all forms of consideration paid for services of employees. They include: a) short-term benefits such as wages, salaries, paid annual leave and sick leave, profitsharing and bonuses, and non-monetary benefits (such as medical care, housing, cars, and free or subsidised goods or services); b) post-employment benefits such as pensions, life insurance, and medical care; c) other long-term benefits such as long-service leave, and bonuses and other benefits not payable within 12 months; and d) termination benefits such as early retirement and redundancy pay. A liability is recognised when an employee has provided service in return for benefits to be paid in the future. An expense is recognised as the Council benefits from services provided by employees. Short-term employee benefits are recognised as an expense as the employee provides services. Leave that does not accumulate (for example, in some countries, sick leave) is recognised only when the leave is taken. Profit-sharing and bonus payments are recognised when the Council has an obligation to pay. A liability is recognised for unpaid short-term benefits. Post-employment benefits, including those provided through multi-employer plans, are classified as either defined contribution plans or defined benefit plans. The arrangements may be formal or informal. Under a defined contribution plan, an Council pays fixed contributions to a separate Council (a fund) and has no obligation to pay further contributions if the fund does not hold sufficient assets to pay employee benefits. All other post-employment benefit plans are defined benefit plans. Contributions payable to a defined contribution plan are recognised as an expense as the employee provides services. Defined benefit plans may be unfunded, or wholly or partly funded. For a defined benefit plan, the Council recognises the defined benefit obligation, based on actuarial assumptions, net of the fair value of plan assets. Changes in actuarial assumptions and unexpected changes in the fair value of plan assets result in actuarial gains or losses. Such gains and losses within a 10 per cent corridor of the obligation or asset value need not be immediately recognised.
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Final For other long-term benefits, such as long-service leave, the Council recognises the defined benefit obligation net of the fair value of plan assets (if any). Actuarial gains and losses and past service costs are recognised immediately. Termination benefits arise only on termination, rather than during employment. They are recognised as an expense and a liability when the Council is demonstrably committed to the termination and cannot withdraw from it. 6.2 ELEMENTS OF AUDIT AREA The major areas of payroll for most Councils would comprise: a) salaries and wages; b) housing allowance; c) other personal emoluments; d) pay as you earn; and e) other deductions 6.3 AUDIT OBJECTIVE The audit objectives is to satisfy auditor that: a) the approved procedures are followed, that the payments made are correct and are in accordance with terms and conditions of service, that the records maintained are accurate and adequate proper security is exercised over collection, make-up, custody and pay out of cash or cheques; management has satisfied the requirements set regarding payroll routines and routines relating to other personal emoluments; and the expenditure recorded in the accounts do not contain material errors or dispositions that cannot be accepted.
b) c) d) 6.4
CRITICAL ASSERTIONS Completeness Validity Measurement Occurrence/Cut off Presentation and classification All expenditure on personal emoluments connected to the Council has been recorded in the books of accounts. All expenditure on personal emoluments pertains to relevant activities and is real. All expenditure on personal emoluments has been computed and recorded correctly. All transactions are recorded in the period in which they occurred. All expenditure on personal emoluments has been correctly classified in the books of accounts and has been described correctly. All computations and disbursements have been made in compliance with rules and regulations and best practice.
Regularity
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Final 6.5 AUDIT STEPS
1 2
Review employment contracts council conditions of service and other compensation policies. Review accrual for salaries, wages and withholding, commissions and leave pay. a) b) c) d) e) obtain an analysis of such accounts, test its arithmetical accuracy and compare amounts to general ledger balances; trace bonuses and similar accruals to proper authorizations; trace bonuses to subsequent payments; test accrued salaries and wages by tracing last payment date to payroll journals and estimating the accrual by reference to subsequent payrolls; and analytically review leave pay accrual for reasonableness.
3 4
Examine other payroll taxes and determine that appropriate accruals have been made and paid on a timely basis. Review accrual for employee benefit plans (LASF and NAPSA deductions). a) test the clerical accuracy of an analysis of employee benefit plans (LASF and NAPSA) and compare amounts to general ledger balances (Current and prior years); test current payments by examining appropriate supporting data; review employee benefit plans; and determine whether the accounting method recognizes employee benefits in accordance with current accounting standards.
b) c) d) 5
Review accrual for deferred compensation and post employment benefits (Other than pensions). a) test the clerical accuracy of an analysis of deferred compensation and post employment benefits agreements and compare amounts to general ledger balances (current and prior years); test current payments by examining appropriate supporting data; review employee deferred compensation and post employment benefits agreements; determine whether the accounting method recognizes deferred compensation cost on the accrual basis (over the employees service life); and consider confirming unpaid balances and terms of payment.
b) c) d) e)
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Final
Review accrual for post retirement benefit plans. a) b) c) d) test the clerical accuracy of an analysis of post retirement benefit plans and compare amounts to general ledger balances (current and prior years); test current payments by examining appropriate supporting data; review post retirement benefit plans; and determine whether the accounting method recognizes postretirement benefits in accordance with current accounting standards.
For each employee compensation account as of the close of the period: a) b) c) d) obtain the relevant schedules; determine that accounting policies and procedures are appropriate; obtain and review schedules supporting accruals; and test schedules supporting significant accruals.
Prepare or update a permanent file schedule indicating monthly payroll. a) b) c) d) e) develop expectations and acceptance ranges; compare recorded values to expectations; identify significant deviations from the expectations; discuss deviations with appropriate council personnel; and consider plausibility of responses and corroborate explanations where appropriate.
Select a sample of the lesser of 30 employees or 50% of the total number of employees from the Councils personnel file. a) b) c) d) e) f) verify employee identification was obtained (social security card, drivers license, birth certificate, etc) and approved wages documented in the personnel file; review reasonableness of pay and benefits, including authorization for withholding amounts; verify rate paid for position held; review overtime accrued to date; compare rate paid to previous year for unusual changes; and discuss findings with appropriate personnel.
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Final 10 Trace Employee remuneration, including bonuses, to the minutes of the council/agreements with the trade union. Examine payroll tax forms in order to verify that payroll tax returns are properly filed and related taxes are being timely remitted. a) compare the amounts shown on the forms with the total deductions shown in the payroll journals and agree the amount recorded as a liability to the general ledger account. b) trace amounts to subsequent payments and note any undue delay in payments.
11
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Final
CHAPTER 7 PROCUREMENT OF GOODS AND SERVICES

Procurement procedures we regulatory by tender provisions as documented. 7.2 ELEMENTS OF AUDIT AREA
a) b) c) d) 7.3
major procurements, including contracts; maintenance of buildings, plant and equipment etc; advance payments to suppliers; and outstanding bills
AUDIT OBJECTIVE
a)
management has satisfied the requirements of Management Tender Committee provisions or Zambia National Tender Board and stores regulations set regarding public procurements; and the expenditure recorded in the books of accounts do not contain material errors.
b) 7.4
CRITICAL ASSERTIONS
Completeness
All the Councils procurements have been recorded in the books of accounts All the procurements pertain to the operations of the audited Council and are real All expenditure on goods and services has been recorded correctly All transactions are recorded in the period in which they occurred. All expenditure on goods and services has been correctly classified in the books of accounts and described correctly All procurements have been made in compliance with rules and regulations in force (tender procedures, stores regulations
Validity
Measurement
Occurrence Presentation and classification
Regularity
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Final
7.5
AUDIT STEPS 1 2 3 Identify the contracts and list them; Identify payments to major contracts; Establish the legality of the contract(s) a) b) c) d) 4 5 6 tender board authority; contract terms; work relates to the budget line; and review council minutes for resolution/authority
Establish the legality/regularity of the payments If advance payments/recovery is it as in contract terms? If interim payments a) payments within the approved amount; b) adequately documented c) supporting documents: Claim for payment, progress report, stage completion certificate, acknowledgement of payment etc
If final payment a) payment within the approved amount; b) adequately documented; c) all contracted work done/delivered; d) delays and consequences; e) variations of contract (scope, time schedule, price, etc); and f) completion certificate.
If payment of retention amount a) made after expiry of defect liability period; and b) correct amount
Establish correctness of accounting a) authorization of the payment (voucher, cheque etc); b) approval of the voucher; c) charged with correct amount to correct account./vote
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Final
CHAPTER 8 AUDIT OF STORES AND STOCKS

IAS 2 defines inventories and deals with recognition of inventory as an asset, and an expense; measurement of inventories; and disclosures about inventories IAS 2 does not apply to inventories that are covered by other standards: work in progress on construction contracts; financial instruments; biological assets; and agricultural produce at the point of harvest. Inventories are measured at cost. Certain inventories are excluded from this requirement: agricultural products (after harvest) and mineral products measured at net realisable value; and the inventories of commodity broker-traders measured at fair value less costs to sell. In all such cases changes in inventory value must be recognised in profit or loss as they occur. The cost of inventory includes costs of purchase and production or conversion. Cost does not include wastage, administrative overheads that are not production costs, and selling costs. Borrowing costs are not usually included. Cost is assigned to each item of inventory specifically, or to similar items by using an allowable cost formula, such as first-in, first-out (FIFO) or weighted average cost. Inventories are reduced to net realisable value (NRV) when this is lower than cost. NRV is estimated selling price less estimated costs of completion and of making the sale. With effect from 2005, use of the last-in, first-out (LIFO) cost formula is no longer permitted. 8.2 ELEMENTS OF AUDIT AREA
The following are the major audit areas: a) b) c) d) register of goods ordered and received; stores ledgers and bin cards; stores demand and issue vouchers; and motor vehicles, spares, equipment and other stores.
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Final 8.3 AUDIT OBJECTIVE
a) b) 8.4
management has satisfied the requirements set regarding stores management and control stores ledgers and other records do not contain material errors in respect of the quantity and value of the stores and stocks.
CRITICAL ASSERTIONS
Completeness
The stores ledgers and other records include all the stores and stock items that the Council owns The stores and stocks physically exist and in the appropriate place The recorded stores and stocks belong to the Council Stores and stocks management and control and the maintenance of stores ledgers and other records are in accordance with the applicable rules and regulations in force and best practice
Existence
Ownership Regularity
8.5
AUDIT STEPS a) verify whether stores ledgers have been maintained; b) verify whether stores ledgers and bin cards have been maintained; c) verify whether major procurements have been recorded in the ledgers; d) verify whether issuance of stores are recorded in line with the regulations; e) verify whether registered stores are in place; f) verify whether stores are owned by the Council; and
g) verify whether stores are written off and scrapped in accordance with the rules and regulations.
8.6
ATTENDANCE AT PHYSICAL INVENTORY COUNTING Management ordinarily establishes procedures under which inventory is physically counted at least once a year to serve as a basis for the preparation of the financial statements or to ascertain the reliability of the perpetual inventory system. When inventory is material to the financial statements, the auditor should obtain sufficient appropriate audit evidence regarding its existence and condition by attendance at physical inventory counting unless impracticable. The auditors attendance serves as a test of controls or substantive procedure over inventory depending on the auditors risk assessment and planned approach. Such attendance will enable the auditor to inspect the inventory, to observe compliance with the operation of managements
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Final procedures for recording and controlling the results of the count and to provide audit evidence as to the reliability of managements procedures. If unable to attend the physical inventory count on the date planned due to unforeseen circumstances, the auditor should take or observe some physical counts on an alternative date and, when necessary, perform audit procedures on tests of intervening transactions. Where attendance is impracticable, due to factors such as the nature and location of the inventory, the auditor should consider whether alternative procedures provide sufficient appropriate audit evidence of existence and condition to conclude that the auditor need not make reference to a scope limitation. For example, documentation of the subsequent sale of specific inventory items acquired or purchased prior to the physical inventory count may provide sufficient appropriate audit evidence. In planning attendance at the physical inventory count or the alternative procedures, the auditor would consider the following: a) b) c) d) for physical inventory counting; the timing of the count; the locations at which inventory is held; and whether an experts assistance is needed.
When the quantities are to be determined by a physical inventory count and the auditor attends such a count, or when the Council operates a perpetual system and the auditor attends a count one or more times during the year, the auditor would ordinarily observe count procedures and perform test counts. If the Council uses procedures to estimate the physical quantity, such as estimating a coal pile, the auditor would need to be satisfied regarding the reasonableness of those procedures. When inventory is situated in several locations, the auditor would consider at which locations attendance is appropriate, taking into account the materiality of the inventory and the risk of material misstatement at assessment of inherent and control risk at different locations. The auditor would review managements instructions regarding: a) b) the application of control activities procedures, for example, collection of used stock sheets, accounting for unused stock sheets and count and re-count procedures; accurate identification of the stage of completion of work in progress, of slow moving, obsolete or damaged items and of inventory owned by a third party, for example, on consignment; and whether appropriate arrangements are made regarding the movement of inventory between areas and the shipping and receipt of inventory before and after the cutoff date.
c)
To obtain audit evidence assurance that managements control activities procedures are adequately implemented, the auditor would observe employees procedures and perform test counts. When performing test counts, the auditor performs procedures over would test both the completeness and the accuracy of the count records by tracing items selected from those records to the physical inventory and items selected from the physical inventory to the count records. The auditor would consider the extent to which copies of such count records need to be retained for subsequent audit procedures testing and comparison.
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Final
The auditor would also consider cut-off procedures including details of the movement of inventory just prior to, during and after the count so that the accounting for such movements can be checked at a later date. For practical reasons, the physical inventory count may be conducted at a date other than period end. This will ordinarily be adequate for audit purposes only when the Council has designed and implemented controls over changes in inventory control risk is assessed at less than high. The auditor would determine and assess whether, through the performance of appropriate audit procedures, changes in inventory between the count date and period end are correctly recorded. When the Council operates a perpetual inventory system which is used to determine the period end balance, the auditor would evaluate and assess whether, through the performance of additional procedures, the reasons for any significant differences between the physical count and the perpetual inventory records are understood and the records are properly adjusted. When inventory is under the custody and control of a third party, the auditor would ordinarily obtain direct confirmation from the third party as to the quantities and condition of inventory held on behalf of the Council. Depending on materiality of this inventory the auditor would also consider the following: a) b) the integrity and independence of the third party. observing, or arranging for another auditor to observe, the physical inventory count.
c) obtaining another auditors report on the adequacy of the third partys accounting and internal control systems for ensuring that inventory is correctly counted and adequately safeguarded. d) inspecting documentation regarding inventory held by third parties, for example, warehouse receipts, or obtaining confirmation from other parties when such inventory has been pledged as collateral; e) engage a specialist to ascertain the value of inventory held by a third party
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Final
CHAPTER 9 AUDIT OF CASH AND BANK
9.1
PROFESSIONAL AND REGULATORY PRONOUNCEMENTS
The audit and accounting treatment are to be based on applicable regulatory provisions affecting various liquid assets. 9.2 ELEMENTS OF AUDIT AREA
a) b) c) d) e) 9.3
cash on hand; bank account balances; cash book; bank statements; and bank reconciliation statements.
AUDIT OBJECTIVE
To verify whether management has satisfied the requirements set regarding payment systems, banking, periodic reconciliation, and systems for receiving and storing monies and other securities. 9.4 CRITICAL ASSERTIONS
Completeness
All the Councils liquid assets, securities and other such assets are recorded in the books of accounts All the liquid assets, securities and other assets recorded in the books of accounts exist in reality The liquid and other assets are owned by the Council All securities have been valued correctly The liquid and such other assets have been properly presented, classified, recorded and described All payments, transfers, reconciliation, journal transactions and procedures for receiving and storing securities are in accordance with the applicable rules and regulations
Existence
Ownership Valuation Presentation and classification
Regularity
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Obtain or prepare a schedule of bank accounts maintained and closed during the year and whether all the necessary authorization were obtained and carry out the following procedures (a) ensure bank account reconciliations have been prepared on a monthly basis and the latest available statement has been used in the reconciliation; each bank account has at least 2 signatories; obtain explanations as to why the reconciliations have not been prepared timeously; ensure the correct cut-off date have been used for reconciliation purposes; check that correct balances have been extracted off the bank statement; the cashbook balance on the reconciliation is in agreement with the cash book ledger; inspect evidence that each bank reconciliation bears evidence of independent review by the certifying and the approving officer; ensure each bank reconciliation is supported by detailed schedules for: i) ii) receipts recorded in cashbook not yet credited by bank (Uncredited lodgment); and outstanding cheque not yet debited by bank (Unpresented cheques) bank statement items not yet recorded in cash book (Bank direct credits and debits).
(b) (c) (d) (e) (f) (g)
(h)
Obtain or prepare a listing of all cash on hand as of year-end: a) b) c) prove clerical accuracy; agree to general ledger control accounts; and investigate significant or unusual reconciling items.
Examine year end bank reconciliations: a) b) c) d) agree book balances to the general ledger; cast reconciliations, including the lists of unpresented cheques; agree bank balances to bank confirmations; determine the nature of reconciling items and examine supporting documentation for large and unusual items;
canceled cheques for propriety of payee, signatures and endorsements;
52
Final 5 6 7 Investigate significant outstanding cheques, deposits in transit and other reconciling items that did not clear in the subsequent month. Reverse all state cheques and adjust the cashbooks balances Obtain subsequent bank statements and test as follows: a) b) trace deposits in transit to the bank reconciliation (indicate date cleared) and investigate any unreasonable delays; trace significant canceled cheques dated prior to the balance sheet date to the list of outstanding cheques; and
c) determine whether other credit memoranda are properly recorded and substantiated. 8 Determine that significant transfers between bank accounts have been properly recorded for a minimum of 5 days prior to and subsequent to the reconciliation date: a) b) c) test the completeness of the analysis; determine whether transfers between each account were recorded in the same accounting period; and if any transfers did not clear in the banks in the same accounting period that they were initiated, determine whether they are properly reflected as reconciling items on the bank reconciliations.
For bank accounts in locations outside the Councils business operating area(s), determine that transfers have been properly recorded for at least 10 days before and after the reconciliation date. a) b) c) d) understand the rationale for such arrangements; obtain an analysis of transfers; test the completeness of the analysis; determine whether transfers between each account were recorded in the same accounting period; if any transfers did not clear in the banks in the same accounting period that they were initiated, determine whether they are properly reflected as reconciling items on the bank reconciliations.
e)
10
Determine whether activity in suspense accounts is proper.
11
Confirm balances with banks and other financial institutions with which business was conducted during the year.
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Final 12 Count (in the presence of the custodian) selected cash funds, especially those that are an integral part of the operations. Determine whether undeposited receipts and unreimbursed expenditures, and inter-bank cheques included in the cash count are properly recorded prior to the balance sheet date. For cash balances denominated in foreign currencies, determine:
13
14
a) whether cash balances have been translated using the appropriate exchange rate; b) whether restrictions exist on the repatriation of such funds. 15 16 Determine whether deposits in smaller or troubled institutions are recoverable. Confirm arrangement (e.g. contingent liabilities, compensation balances, cash restrictions, forward exchange contracts, interest rate swaps, or written guarantees, etc) directly with an appropriate official of the financial institution. Obtain bank confirmation of bank balances and existence of bank accounts from all known banks where the Council may maintain an account.
17
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Final
CHAPTER 10 GRANTS AND OTHER PAYMENTS

IAS 20 requires disclosure of government grants and assistance from which the Council has directly benefited. Government grants are transfers of resources (monetary or non-monetary) to a Council in return for compliance with specified conditions. They include reductions in liabilities to the government. Government assistance is a benefit available to a Council that satisfies qualifying criteria. Government grants are recognised once it is clear that the Council will comply with any specified conditions and that the grants will be received. Non-monetary grants are recognised at fair value. Receipt of a grant is not always conclusive evidence that conditions will be fulfilled. Government grants are recognised as income. They are matched to the costs they are intended to compensate. If there are no future related costs a grant is recognised as income when receivable. Grants are not credited directly to equity. Government grants that relate to assets are initially recognised in the balance sheet as deferred income or as a deduction from the related assets. A grant is then recognised as income over the life of the asset, by reducing deferred income over that period, or by way of reduced depreciation. A government grant that becomes repayable is accounted for by reversing any remaining deferred income or increasing any related asset and its accumulated depreciation. Otherwise the repayment is recognised as an expense. 10.2 ELEMENTS OF AUDIT AREA a) b) c) 10.3 transfer of resources to local authorities; transfer of resources to statutory bodies; and membership fees or subscriptions to international institutions.
AUDIT OBJECTIVE
a) b)
management has established and issued functional reporting procedures to the recipients of the grants and other payments; and fees and other subscriptions have been paid to intended international organizations.
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Final 10.4 CRITICAL ASSERTIONS
Completeness
All payments of grants and subscriptions have been recorded in the books of accounts of the Council All payments of grants and subscriptions pertain to the operations of the intended Councils and are real The correct amount of funding has been granted or paid in accordance with the approved guidelines and procedures for reporting the results have been established and communicated. All grants and subscriptions have been paid in accordance with the rules and regulations in force
Validity
Measurement
Regularity
10.5.
AUDIT STEPS
Test the castings of grants subsidiary ledgers and agree the total with the general ledger control.
2 3
Obtain revenue source documents (e.g. remittances from The Central Government or other donors) Test cutoff procedure a) b) inquire from appropriate accounting personnel as to the cutoff procedures employed by the local authority; review grant journals for a reasonable period prior and subsequent to the end of the prior period, investigate any unusual entries, and document the period covered; and investigate large and unusual grants transactions that occurred near the close of the prior period.
c) 4
Verify the appropriate cutoff of grants revenue: a) b) c) obtain last receipt number; ascertain that the last receipt number was included in the current periods recorded grants; ascertain that the subsequent receipt numbers are included in the subsequent periods recorded;
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Final 5 Review the revenue recognition policies for appropriateness and consistency with the year, giving particular attention to: a) b) 6 reasonableness and consistency of the accounting method employed; and the type of grants, i.e. capital or revenue grant.
Consider whether transactions may be occurring between LA and related parties that are not being given appropriate accounting treatment. Consider whether balances or transactions that are large or unusual indicate the existence of a previously undisclosed related party. Obtain or prepare a schedule of revenue grants by month in sufficient detail (e.g. by donors) and perform the following procedures: a) develop expectations and acceptance ranges (i.e. from the government yellow book); b) compare recorded values to expectations perform a reconciliation of total revenue and capital grants received to the respective donor agreements and budgets
7 8
c) identify significant deviations from the expectations d) discuss deviations with appropriate council personnel e) consider plausibility of responses and corroborate explanations and responses where appropriate. 9 In respect of the amounts received a) b) c) agree individual amounts banked with banking instructions from the donor. check the amount recorded in the cash book with the bank statements. check the dates of the banking instructions to the bank statements to ensure banking was done without undue delay. scrutinise receipts cashbook and vouch revenue grants income and capital grants. test postings from the receipts cash book to the general ledger. level of test 90%. perform the following: determine the Councils procedures to ensure the completeness of income from revenue grants
d) e) f)
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Final 10 review the reasonableness of the amortization of capital grants
Confirm all Grants income balances or transactions and Grant debtors balances over an agreed value in ZMK, using positive confirmations (coverage should be at least 80% of population value) a) b) c) d) e) identify accounts using predetermined amounts or criteria. prepare confirmations send second requests to non-responding customers for non-responding customers, perform alternative audit procedures if differences are reported on returned confirmations, document follow-up procedures and results: i) ii) discuss unresolved differences with appropriate council personnel; and carry audit differences to summary of Unrecorded Misstatements Work paper.
11
Scan the Grant revenue accounts in the general ledger for large or otherwise unusual entries: a) b) c) d) large amount recorded at or near year end; large volume of transactions at or year end; unusual posting sources; and large journal entries at or near year end.
12
If unusual or complex transactions have been identified, inquire of individuals outside of the accounting department who initiate or process such transactions about the following: a) b) c) existence or suspicion of fraud; undisclosed side agreements; and activities or directives by management that are out of the ordinary.
13
Examine grant agreements/contract for contract values and terms, and determine compliance. a) b) c) determine appropriateness of revenue recognition; determine whether amounts received are in accordance with contract terms; determine whether modifications or extras to the original contract are supported by signed agreements; and
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Final d) confirm terms of contracts with significant donors, as well as the absence of any side agreements.
14 15 16 17 18 19
Determine whether debtors in foreign currency have been translated into the reporting currency using the appropriate exchange rate. Examine write-offs and other credits to accounts receivable subsequent to the confirmation date and trace to supporting documentation for authorization and appropriateness. Examine accounts written-off during the year for authorization and appropriateness. Develop an estimate of the allowance for doubtful accounts. Discuss estimates and analyses with appropriate Council personnel. For non-monetary resources such physical assets granted to the Council, the auditor must physically inspect them for existence, maintenance and proper official usage. These resources may include: a) b) c) motor vehicles; office equipment; and real estate.
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Final
CHAPTER 11 AUDIT OF LOANS

IAS 23 prescribes the accounting treatment for borrowing costs. Borrowing costs are interest and other costs incurred in connection with borrowing. The Standard allows a choice of two alternative treatments: a) the recognition of borrowing costs as an expense; or b) the capitalisation of borrowing costs that are directly attributable to the acquisition, construction or production of an asset that takes a substantial time to get ready for its intended use or sale. Borrowing costs directly attributable to the acquisition, construction or production of an asset are those that would have been avoided if the expenditure on the asset had not been made. They may be specific borrowing costs or a calculated amount based on a weighted average borrowing rate applied to expenditure on the asset. Capitalisation of borrowing costs takes place during the development of the asset, and ends when the asset is ready for intended use or sale. When the asset is completed in parts, capitalisation of borrowing costs ceases when each part is ready for intended use or sale. 11.2 ELEMENTS OF AUDIT AREA
Loans usually comprise borrowings for a medium to a long term time frame
11.3 AUDIT OBJECTIVE
To ensure all borrowings are properly accounted for and the treatment accorded to them is in sympathy with the application of the borrowing. 11.4 CRITICAL ASSERTIONS
Completeness Validity Measurement Occurrence/Cut off Presentation and classification Regularity
All loan obligations connected to the Council have been recorded in the books of accounts. All loan obligations were contracted for a valid reason All loan obligations have been captured and recorded correctly. All obligations are recorded and disclosed in the period in which they relate All obligations have been properly and fully disclosed and presented All loan obligations are legitimate to the council
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Obtain, prepare or update a permanent file schedule of loans payable and other financing arrangements:
a) b) c) 2 3
obtain copies of all loan agreements and summarise important information, including loan covenants, if any; foot and agree balances on summary to the general ledger control. examine documentation such as directors/finance committee minutes and correspondence for evidence of new borrowing.
Confirm significant debt paid off during the year. For bank loans and other debt obligations as of the close of the prior period: a) b) obtain permanent file information regarding each debt obligation. confirm the following: outstanding balance collateral maturity date interest rate guarantees compensating balance
4 5
Consider whether transactions may be occurring between the council and related parties that are not being given appropriate accounting treatment. Consider whether balances or transactions that are large or unusual indicate the existence of previously undisclosed related party. Confirm loan balances and other pertinent details of loan agreements directly with the lenders. For existing loans, agree on outstanding balances to the amortization and permanent file schedules. Confirm any new loans and loans where there have been changes to the agreements. Examine supporting documentation on significant additions to loans and trace loan proceeds to cash receipt records.
6 7
8 9
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Final 10 11 12 13 Analyze interest expense for the year and adequacy of accrued interest. Determine whether premiums and discounts on bonds issued or reacquired during the year have been accounted for properly. Determine whether foreign currency balances have been translated into the reporting currency using the appropriate exchange rate. Determine whether interest should be imputed for non-interest bearing creditors or for creditors bearing interest at less than normal rates for comparable transactions. Examine loan agreement covenants relating to limitations and default provisions that are objectively determinable (e.g.; those that can be mathematically quantified and tested).
14
15
Determine whether there have been any violations of covenants or provisions of loan agreements. a) b) update or prepare a permanent file schedule that describes the various covenants or provisions of loan agreement; test each computation or item involved to determine whether the council is in compliance; examine confirmation replies for evidence of known matters of non-compliance; consider reviewing correspondence for information related to the loan, such as modifications, waivers and notification of significant events; if, based on the foregoing review, a covenant or provision violation appears to exist with respect to any loan agreement: i) ii) determine the effect of such violation on the related agreement and on other agreement (i.e. cross defaults); determine and document any additional procedures to be performed (e.g. written waivers obtained by council if necessary, or contractual arrangements are in place which ensure that the violation will be cured within the grace period); and consider the effect of the violations of covenants on the going concern assessment.
c) d)
e)
iii)
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Final
CHAPTER 12
12.1
AUDIT OF INVESTMENTS
PROFESSIONAL AND REGULATORY PRONOUNCEMENTS
When long-term investments are material to the financial statements, the auditor should obtain sufficient appropriate audit evidence regarding their valuation and disclosure. Audit procedures regarding long-term investments ordinarily include obtaining audit considering evidence as to whether the Council has the ability to continue to hold the investments on a long term basis and discussing with management whether the Council will continue to hold the investments as long-term investments and obtaining written representations to that effect. Other audit procedures would ordinarily include considering related financial statements and other information, such as market quotations, which provide an indication of value and comparing such values to the carrying amount of the investments up to the date of the auditors report. If such values do not exceed the carrying amounts, the auditor would consider whether a write-down is required. If there is an uncertainty as to whether the carrying amount will be recovered, the auditor would consider whether appropriate adjustments and/or disclosures have been made. 12.2 ELEMENTS OF AUDIT AREA
a) Bonds b) Financial instruments c) Treasury bills 12.3 AUDIT OBJECTIVE
To ensure investments are properly valued and disclosed. 12.4 CRITICAL ASSERTIONS
All council investments have been recorded in the books of accounts. All investments are relevant and are real. All investments have been appropriately valued and recorded All recorded investments have actually been undertaken All council investments have been properly presented and classified All investments are legal and legitimate to the council.
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1 2 3 4 5 6
Review and update the permanent file schedule of long-term inter-corporate investments. Agree the closing balance to the general ledger control. Scan the inter-Council accounts for unusual or a typical activity. Confirm or agree significant inter-Council due to and due from account balances. Ensure carrying balance (in individual investors accounts) are recognized at amortised cost. Enquire whether the method of accounting used is appropriate and consistent with prior years. Determine whether long-term inter-corporate investments have been impaired in terms of IAS 39 and the impairment has been accounted for properly. Enquire whether there are any restrictions, pledges, or liens on any of the investments and, if any, cross reference information about restrictions, pledges, or liens to the related liability information in the work papers.
7 8
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Final
CHAPTER 13 AUDIT OF STATUTORY OBLIGATIONS

13.1 RELEVANT PROFESSIONAL AND REGULATORY PRONOUNCEMENTS Statutory obligations are governed by relevant applicable legal framework that seek to promote statutory compliance 13.2 ELEMENTS OF AUDIT AREA LASF contribution, PAYE, ZULAWU, NAPSA, Workers Compensation 13.3 AUDIT OBJECTIVE
To confirm that statutory obligations are properly computed and disclosed. 13.4 CRITICAL ASSERTIONS
All statutory obligations on personal emoluments connected to the Council have been recorded in the books of accounts. All payments on statutory obligations pertain to eligible employees All liabilities on statutory obligations have been computed and recorded correctly. All liabilities are recorded in the period in which they occurred. All liabilities on statutory obligations have been correctly classified in the books of accounts and have been described correctly. All computations and disbursements have been made in compliance with relevant legislation, regulations and best practice.
13.5
AUDIT STEPS 1 Determine which agencies regulate the Council and the regulatory guidelines to which it is subject. For Councils, they would fall under the provisions of the Local Government Act 1991, Local Government Services Regulations (1996) and Council specific standing orders. Document understanding of the practices and procedures employed by the Council in computing its net capital. Document understanding of the practices and procedures employed by the Council in computing its net capital and reserve requirements and complying with prompt payment of statutory obligations Obtain print outs of lump-sum payments and the monthly pension payments and perform the following tests: a) b) c) the total payments to the ledger; for monthly payments sample 20 members while for the lump sum payments sample 15; agree the names of members to the register of members;
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Final d) e) 5 agree the amount paid to relevant supporting documentations including the payment voucher and check authorizations; and agree the amount paid to the detailed computation on the file and check that the computation was approved by the council's internal auditors.
Determine whether any portion of contingent liabilities are probable and if so, whether amounts are recorded properly. On an account by account basis, compare significant operating expenses to prior years and to expectations and investigate unusual or unexpected differences. Analyse provisions to ensure that they are reasonable and meet the recognition criteria of IAS 37.
6 7
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Final
CHAPTER 14 AUDIT OF COMMERCIAL VENTURES

14.1 PROFESSIONAL AND REGULATORY PRONOUNCEMENTS Where a local authority runs commercial ventures it produces a Trading, Profit and Loss account and Balance sheet as part of its financial statements. The audit of these accounts is governed by the same regulatory provisions that are applicable to the audit of a Councils financial statements. 14.2 ELEMENTS OF AUDIT AREA The following are typical audit areas that are covered during the audit of a commercial venture: a) b) 14.3 Trading, profit and loss accounts; and Balance sheet
AUDIT OBJECTIVE The audit objective includes: a) b) c) confirming that financial statements do not contain material errors or dispositions that cannot be accepted; confirming that financial statements have been prepared in accordance with the relevant reporting framework verifying whether the preparation of the financial statements and disclosures comply with GAAPS;
14.4
CRITICAL ASSERTIONS
Completeness Existence Ownership Valuation Presentation and classification
All expenditures and revenues relating to the Council have been recorded in the accounts All the balance sheet figures represent items that existed at the balance sheet date All the balance sheet items represent an asset or a liability owned by the Council under audit Assets and liabilities have been valued accurately All the financial items have been correctly classified in the accounts and have been described correctly in respect of account and period All the dispositions have been in compliance with the rules and regulations. All dispositions are acceptable on the basis of the current norms and standards for financial management (in the Public Sector), and in accordance with the best practice.
Regularity
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From audit steps, an auditor should follow steps applicable to each individual financial statement element as discussed elsewhere in this manual.
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Final
CHAPTER 15 AUDIT OF COUNCIL PROCEEDINGS

The audit of a Councils proceedings are governed by the provisions of the following: a) b) c) d) 15.2 Local Government Act (1991); Local Government Service Regulations (1996); Council specific Standing Orders; and CDF Guidelines.
ELEMENTS OF AUDIT AREA
The elements covered under the audit of a council proceedings are wide as they relate to any other provisions of the above mentioned regulatory documents in all material respects except in instances relating to financial management . Typically, elements covered under such type of an audit would include: a) b) c) d) e) f) 15.3 general administration; employment; disciplinary proceedings; training; council proceedings; by-laws
AUDIT OBJECTIVE
The objective is to ensure that the council observed the provisions of the relevant regulatory instruments and followed the right procedures. In addition, confirm that by-laws passed by a particular council have a legal backing. 15.4 CRITICAL ASSERTIONS
Completeness Validity
Where all the council formalities followed? Was this a valid council resolution in the light of the records of the meeting? Did the meeting being referred to as part of the resolution really take place? Were the facts of council resolution properly minuted ? Were the resolutions based on council powers?
Occurrence
Classification Regularity
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For the audit of an aspect of the council that is not financial management - related, follow the following steps: 1 2 3 4 5 6 7 8 9 For each audit area identify the relevant regulatory framework and compare the provisions in the framework with what the council does or have been doing in practice; Ensure that posts are provided for in the establishment register; Ensure that all staff recruitments are fresh recruitments and not transfers; Confirm that adequate notice was given for respective recruitments; Confirm that all promotions or demotions are as a result of the outcome of the Performance Management System; Confirm that all redundancies have been based on the legal provisions; Confirm that sponsorship for training is meant to enhance an individuals contribution to Councils operation; Confirm that a minute book or file is kept for all Councils proceedings and resolutions; and Confirm that all by-laws are backed by the provisions of the Local Government Act.
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Final
CHAPTER 16 AUDIT OF FINANCIAL STATEMENTS

16.1 PROFESSIONAL AND REGULATORY PRONOUNCEMENTS PROVISIONS International Standard on Auditing (ISA) 200, Objective and General Principles Governing an Audit of Financial Statements should be read in the context of the Preface to the International Standards on Quality Control, Auditing, Assurance and Related Services, which sets out the application and authority of ISAs. The purpose of this International Standard on Auditing (ISA) is to establish standards and provide guidance on the objective and general principles governing an audit of financial statements. This ISA is to be read in conjunction with ISA 120, Framework of International Standards on Auditing. The auditor should comply with the Code of Ethics for Professional Accountants issued by the International Federation of Accountants. Ethical principles governing the auditors professional responsibilities are: a) b) c) d) e) f) g) independence; integrity; objectivity; professional competence and due care; confidentiality; professional behavior; and technical standards.
The auditor should conduct an audit in accordance with ISAs. These contain basic principles and essential procedures together with related guidance in the form of explanatory and other material. The auditor should plan and perform an audit with an attitude of professional skepticism recognizing that circumstances may exist that cause the financial statements to be materially misstated. An attitude of professional skepticism means the auditor makes a critical assessment, with a questioning mind, of the validity of audit evidence obtained and is alert to audit evidence that contradicts or brings into question the reliability of documents or management representations. For example, an attitude of professional skepticism is necessary throughout the audit process for the auditor to reduce the risk of overlooking suspicious circumstances, of over-generalizing when drawing conclusions from audit observations, and of using faulty assumptions in determining the nature, timing and extent of the audit procedures and evaluating the results thereof. In planning and performing an audit, the auditor neither assumes that management is dishonest nor assumes unquestioned honesty. Accordingly, representations from management are not a substitute for obtaining sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion 1. The term scope of an audit refers to the audit procedures deemed necessary in the circumstances to achieve the objective of the audit. The procedures required to conduct an audit in accordance with ISAs should be determined by the auditor having regard to the requirements of ISAs, relevant professional bodies, legislation, regulations and, where appropriate, the terms of the audit engagement and reporting requirements. An audit in accordance with ISAs is designed to provide reasonable assurance that the financial statements taken as a whole are free from material misstatement. Reasonable assurance is a
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Final concept relating to the accumulation of the audit evidence necessary for the auditor to conclude that there are no material misstatements in the financial statements taken as a whole. Reasonable assurance relates to the whole audit process. However, there are inherent limitations in an audit that affect the auditors ability to detect material misstatements. These limitations result from factors such as: a) the use of testing; b) the inherent limitations of any accounting and internal control system (for example, the possibility of collusion); and c) the fact that most audit evidence is persuasive rather than conclusive. The work undertaken by the auditor to form an opinion is also permeated by judgment, in particular regarding: a) b) the gathering of audit evidence, for example, in deciding the nature, timing and extent of audit procedures; and the drawing of conclusions based on the audit evidence gathered, for example, assessing the reasonableness of the estimates made by management in preparing the financial statements.
Further, other limitations may affect the persuasiveness of evidence available to draw conclusions on particular financial statement assertions (for example, transactions between related parties). In these cases certain ISAs identify specified procedures which will, because of the nature of the particular assertions, provide sufficient appropriate audit evidence in the absence of: a) b) unusual circumstances which increase the risk of material misstatement beyond that which would ordinarily be expected; or any indication that a material misstatement has occurred.
While the auditor is responsible for forming and expressing an opinion on the financial statements, the responsibility for preparing and presenting the financial statements is that of the management of the Council. The audit of the financial statements does not relieve management of its responsibilities. Irrespective of whether an audit is being conducted in the private or public sector, the basic principles of auditing remain the same. What may differ for audits carried out in the public sector is the audit objective and scope. These factors are often attributable to differences in the audit mandate and legal requirements or the form of reporting (for example, public sector entities may be required to prepare additional financial reports). When carrying out audits of public sector entities, the auditor will need to take into account the specific requirements of any other relevant regulations, ordinances or ministerial directives which affect the audit mandate and any special auditing requirements, including the need to have regard to issues of national security. Audit mandates may be more specific than those in the private sector, and often encompass a wider range of objectives and a broader scope than is ordinarily applicable for the audit of private sector financial statements. The mandates and requirements may also affect, for example, the extent of the auditors discretion in establishing materiality, in reporting fraud and error, and in the form of the
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Final auditors report. Differences in audit approach and style may also exist. However, these differences would not constitute a difference in the basic principles and essential procedures. ISA 300, Planning an Audit of Financial Statements Scope of the Audit Engagement
When auditing a single financial statement, or one or more specific elements, accounts or items of a financial statement, the interrelationship between related financial statements, or between various elements, accounts or items within a financial statement, and the effect that this has on the scope of the audit. For example, in auditing revenue, the auditor considers the relationship between revenue, debtors and inventory, including the pervasive effect of internal control. 16.2 ELEMENTS OF AUDIT AREA a) b) c) d) 16.3 cumulative year end receipts and payments accounts; Income and Expenditure accounts balance sheet; and trading, profit and loss account. (where a council has engaged in the running of commercial ventures)
AUDIT OBJECTIVE
The objective of an audit of financial statements is to enable the auditor to express an opinion whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework. The phrases used to express the auditors opinion are give a true and fair view or present fairly, in all material respects, which are equivalent terms. Although the auditors opinion enhances the credibility of the financial statements, the user cannot assume that the opinion is an assurance as to the future viability of the Council nor the efficiency or effectiveness with which management has conducted the affairs of the Council. The audit objective includes a) b) c) confirming that financial statements do not contain material errors or dispositions that cannot be accepted; confirming that financial statements have been prepared in accordance with the relevant reporting framework; and verifying whether the preparation of the financial statements and disclosures comply with GAAPS.
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Final 16.4 CRITICAL ASSERTIONS
Completeness
All expenditures and revenues relating to the Council have been recorded in the accounts All the balance sheet figures represent items that existed at the balance sheet date All the balance sheet items represent an asset or a liability owned by the Council under audit Assets and liabilities have been valued accurately All the financial items have been correctly classified in the accounts and have been described correctly in respect of account and period All the dispositions have been in compliance with the rules and regulations. All dispositions are acceptable on the basis of the current norms and standards for financial management (in the Public Sector), and in accordance with the best practice.
Existence
Ownership
Valuation Presentation and classification
Regularity
16.5
AUDIT STEPS
For audit steps, an auditor should follow steps applicable to each individual financial statement element as discussed elsewhere in this manual.
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Final
CHAPTER 17 FIXED ASSETS

IAS 16 prescribes the accounting treatment for property, plant and equipment so that users of the financial statements can discern information about an entitys investment in its property, plant and equipment and the changes in such investment. The principal issues in accounting for property, plant and equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation charges and impairment losses to be recognised in relation to them. 17.2 ELEMENTS OF AUDIT AREA
a) b) c) d) 17.3
Land and buildings; Motor vehicles; Machinery, plant and equipment; Non-tangible fixed assets
AUDIT OBJECTIVE
To confirm that Fixed Assets are acquired, as economically as possible, are correctly recorded, are in safe custody, and properly maintained. 17.4 CRITICAL ASSERTIONS
Completeness
All expenditures and revenues relating to the Council have been recorded in the accounts All the balance sheet fixed assets figures represent items that existed at the balance sheet date All the fixed assets represent assets owned by the Council under audit Fixed Assets have been valued accurately All the fixed assets have been correctly classified in the accounts and have been described correctly in respect of account and period All the dispositions have been in compliance with the rules and regulations. All dispositions are acceptable on the basis of the current norms and standards for financial management (in the Public Sector), and in accordance with the best practice.
Existence
Ownership Valuation Presentation and classification Regularity
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1.
Enquire whether all new and existing lease agreements are identified and properly accounted for (obtain copies of leases and other continuing data for inclusion in the permanent file) and update permanent file schedules. Cast the fixed asset subsidiary ledgers and agree the total with the general ledger accounts. Obtain, prepare, or update the permanent file schedule of rent expense and compare to recorded amounts. Obtain or prepare schedule of investment property rental income for the period by reference to lease agreements and compare to recorded amounts. Examine the repairs and maintenance account items for items not conforming to the capitalization policies. Enquire whether there have been any capital asset transfers between the Local authority and other related parties, from other locations, or account classifications and determine whether such items have been accounted for properly. Examine the construction in progress records from the last 5 business days of the reporting period and the first 5 days of the next period, to determine whether capital additions have been recorded in the proper period. Examine rent received for the last month of the year and the first month of the subsequent year and ensure that it is recorded in the correct period. For capital assets as of the close of the period: a) obtain schedules supporting each class of capital assets; and b) test significant capital assets as follows: observe significant capital assets; review supporting documentation; test computation of accumulated depreciation; and inquire as to idle capital assets or unrecorded disposals.
2. 3. 4. 5.
6.
7.
8. 9.
10.
For lease obligations as of the close of the period: a) obtain schedules regarding each lease obligation; and b) determine that the accounting treatment is appropriate for each lease.
11.
Obtain, prepare or update a permanent file schedule summarizing the capital asset capitalization policies and review for appropriateness and consistency of accounting method with the prior year.
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Final 12. Consider whether transactions may be occurring between the client and related parties that are not being given appropriate accounting treatment. Consider whether balances or transactions that are large or unusual indicate the existence of a previously undisclosed related party. Consider advisability of physically observing individually significant additions to capital assets. Sample current year capital asset additions. a) select sample for testing capital asset additions; b) determine the cost of each sample item selected; and c) report audit differences to appropriate client personnel. 16. Examine significant capital asset retirements and dispositions and recalculate the related gains or losses: a) b) c) d) e) 17. 18. 19. 20. 21. examine contracts, invoices and other documents supporting asset sales; trace trade-ins to the related asset retirement records; compare asset cost and accumulated depreciation to capital assets records; examine documentation supporting capital assets disposed of in non-monetary transactions; and determine whether significant transactions have been properly authorized (e.g. directors/finance committee minutes).
13. 14.
15.
Consider whether interest and other costs qualify for capitalization. Ensure that investment properties have been properly accounted for in accordance with IAS40 Determine whether depreciation or amortization charged to current operations is computed on a consistent and reasonable basis. Analyse the depreciation and amortization provision on a detailed basis and recomputed individual items. Determine whether provisions are adequate for future removal and site restoration costs. a) obtain analyses and test reasonableness of provision for asset impairments, future removal and site restoration costs and accruals for other environmental obligations, and review with appropriate client personnel. b) if costs cannot be reasonably estimated, consider whether contingent liability or measurement uncertainty disclosure is required.
22.
For significant assets, determine, whether the carrying amounts exceed net recoverable amounts.
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Final 23. 24. 25. Obtain, prepare or update the permanent file schedule of lease agreements, covenants and review for compliance. Enquire if there are any plans or commitments made to acquire capital assets. Enquire whether any capital assets have been pledged as security.
26.
Observe the usage of the fixed assets especially regarding official and personal use.
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Final
CHAPTER 18DEBTORS
Professional and Regulatory Pronouncements covering debtors are derived from the same framework covering preparation of financial statements. 18.2 ELEMENTS OF AUDIT AREA
For a council typical elements making up debtors include but are not restricted to; a) b) c) d) e) 18.3 owners rates debtors; personal levy; ground rent ( from improved statutory housing areas); staff debtors; and standing charges
AUDIT OBJECTIVE
To confirm the legitimacy, valuation and collectibility of a Councils debtors. The objective under this audit area is to confirm that all debtors are: a) actually receivable; b) due to the council; and c) reflected at correct carrying amounts. 18.4 CRITICAL ASSERTIONS
Completeness Validity Measurement Occurrence/Cut off Classification Regularity
All debtors due have been recorded All the recorded debtors pertain to relevant activities and are real All debtors have been recorded correctly All transactions are recorded in the period in which they occurred. All debtors have been correctly recorded in the books of accounts and described All computation and recordings have been made in compliance with rules and regulations and best practice.
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1 2 3
Test the castings of debtors subsidiary ledgers and agree the total with the general ledger control Select a sample of debtors source documents and trace them to the recorded transactions Test cutoff procedures at the end of the prior period. a) inquire of billings and accounting personnel as to the cutoff procedures employed at the end of the prior period. review debtors journal for a reasonable period prior and subsequent to the end of the prior period, investigate any unusual entries, and document the period covered.
b)
Verify the appropriate cutoff of debtors:
a) b) c) 5
obtain last receivable invoice number; ascertain that the last levies invoice number was included in the current periods recorded levies; and ascertain that the subsequent levies invoice numbers are included in the subsequent periods recorded levies.
Scan the debtors records for the last business day of the year for large or unusual entries and verify that they were recorded in the proper period. Review the levies revenue recognition policies for appropriateness and consistency with the prior year, giving particular attention to:
a) b) 7
effects of new levy types and other changing circumstances; and one time or unusual transactions.
Consider whether transactions may be occurring between the Council and related parties that are not being given appropriate accounting treatment. Consider whether balances or transactions that are large or unusual indicate the existence of a previously undisclosed related party. Obtain or prepare a schedule of levies revenue by month in sufficient detail (e.g., by levies type) and perform the following procedures: a) develop expectations and acceptance ranges;
8 9
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Final b) compare recorded values to expectations; c) identify significant deviations from the expectations; d) discuss deviations with appropriate Council personnel; and e) consider plausibility of responses and corroborate explanations and responses where appropriate. 10 Confirm all receivable balances or transactions over an agreed value in ZMK, using positive confirmations (coverage should be at least 80% of population value). a) b) c) d) e) identify accounts using predetermined amounts or criteria; prepare confirmations; send second requests to non-responding customers; for non-responding customers, perform alternative audit procedures; and if differences are reported on returned confirmations, document follow-up procedures and results. 11 discuss unresolved difference with appropriate Council personnel; and carry audit differences to summary of Unrecorded Misstatements work paper
Scan the levies revenue accounts in the general ledger for large or otherwise unusual entries: a) large amounts recorded at or near year end; b) large volume of transactions at or near year end; c) unusual posting sources; and d) large journal entries at or near year end.
12
If unusual or complex transactions have been identified, inquire of individuals outside of the accounting department who initiate or process such transactions about the following: a) existence or suspicion of fraud; b) undisclosed side agreements; and c) activities or directives by management that are out of the ordinary.
13
Test the levies values: a) select an appropriate sample of items from the file or listing levies; and b) verify the listed values with appropriate council personnel and statutory instrument.
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Final 14 Test the allowance for doubtful accounts by: a) Test the aging of levies receivable subsidiary records: obtain an aging by customer of accounts receivable; and trace relevant documentation on levies and payment activity to verify that levies debtors have been properly aged. 15 Identify customers that potentially post a credit risk: a) customers with significant past due accounts; b) customers whose credit situation has declined during the year by comparing the aging Levies Debtors by significant customer to that existing at a previous period (e.g.; last year); c) customers where significant amounts were written off during the year; d) Review identified customers with appropriate council personnel; e) review experience of recoveries of accounts previously written-off; f) develop an estimate (or range) of the allowance for doubtful accounts with appropriate council personnel;
g) discuss estimate (or range) of the allowance for doubtful accounts with appropriate council personnel; and h) if any, carry to the summary of unrecorded misstatements the appropriate amount between estimate (or range) and the recorded amount. 16 17 Determine subsequent payment of past due accounts by examining remittance advices, bank deposit slips and bank statements. Scan the accounting records for write-offs and other credits to accounts receivable subsequent to the reporting period and determine whether adjustments are required. Examine write-offs and other credits to accounts receivable subsequent to the confirmation date and trace to supporting documentation for authorization and appropriateness. Examine accounts written-off during the year for authorization and appropriateness Compare the following ratios to prior periods and to expectations: a) b) c) allowance for doubtful accounts/accounts receivable; bad debt expense/levies; and average levies receivable collection period.
18 19 20
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Final 21 Obtain schedule of management and staff debtors and loans and perform the following: a) b) c) d) trace to personal file; assess if proper authorization was obtained and validity of entitlement; note the purposes for which the amounts were borrowed; test the recoverability of the outstanding balances and trace the deductions are posted to the appropriate payroll and income ledgers; and confirm balances with the staff.
e)
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CHAPTER 19 AUDIT OF CREDITORS

Professional and Regulatory Pronouncements covering creditors are derived from the same framework covering preparation of financial statements in so far as they relate to creditors. 19.2 ELEMENTS OF AUDIT AREA
For a Council, typical elements making up creditors include: a) b) c) d) e) f) g) h) i) j) Suppliers (trade creditors); LASF contributions; Workmen compensation; NAPSA contributions; PAYE; Staff salaries and Wages; VAT; and ZULAWU; ZCTU; and Utilities service providers
19.3
AUDIT OBJECTIVE
The objective under this audit area is to confirm that all creditors are: a) b) c) genuine; contracted by the Council; and reflected at correct carrying amounts.
19.4
CRITICAL ASSERTIONS All creditors have been recorded All the recorded creditors pertain to relevant activities and are real All creditors have been recorded correctly All transactions are recorded in the period in which they occurred.
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Completeness Validity Measurement Occurrence/Cut off
Final
Classification Regularity
All creditors have been correctly recorded in the books of accounts and described All computation and recordings have been made in compliance with rules and regulations and best practice.
19.5
AUDIT STEPS
Obtain a schedule of creditors outstanding as of the close of the period and scan the list for inclusion of appropriate suppliers. Review significant payments for 90 days after the close of the period to determine that opening accounts payable is complete. Test the castings of accounts payable subsidiary ledger and agree with the general ledger. Enquire of purchasing and accounting personnel as to the possibility of unrecorded liabilities and examine unprocessed invoices for unrecorded creditors.
2 3 4
Enquire of accounting personnel as to the mailing of all cheques that were drawn as of the year end and before the books were closed and, if not mailed, consider reclassification to cash and liability accounts.
6 7
Search for unrecorded liabilities by scanning the cash disbursements journal for 45 days subsequent to the year end, or to the end of the fieldwork, for large or unusual entries. Scan the detail of accounts payable at year end for suppliers with large purchase activity (major suppliers) or balances, to reconcile to supplier statements, or to confirm. Obtain at year-end last cheque number for all significant bank accounts.
Verify that the recording date of the last cheque was at or before year end and that the cheque cleared by the bank in a reasonable time. Verify that the recording date of the next check was after the year-end date.
10
11 12
Consider whether transactions may be occurring between the client and related parties that are not being given appropriate accounting treatment. Consider whether balances or transactions that are large or unusual indicate the existence of a previously undisclosed related party.
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Final 13 If unusual or complex transactions have been identified, inquire of individuals outside of the accounting department who initiate or process such transactions about the following: a) existence or suspicion of fraud; b) undisclosed side agreements; and c) activities or directives by management that are out of the ordinary. 14 15 16 Determine whether liabilities payable in foreign currency are stated at the proper amount. Identify significant sales and purchase commitments, if any, and determine whether losses will be realized upon completion of the contracts. Enquire if business transactions between Council employees do occur through use of employee owned business and the Council. For such transactions test for the following: a) b) 17 proper disclosures of such business relationships have been done and appropriate levels of authorizations have been given by Council management; and arm lengths transactions do occur.
Trace a sample of suppliers invoices and to Goods Received Noted (GRN) and to physical goods in stores. If such goods are still in stock check their conditions.
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Final
CHAPTER 20 INSPECTIONS
20.1 RELEVANT PROFESSIONAL AND REGULATORY PRONOUNCEMENTS
In addition to the ordinary audit of the accounts of a council required by the provisions of s52of the Local Government Act, the Minister may at any time direct that an extraordinary audit of all or any of the accounts of a council be conducted and for that purpose may appoint a public officer to be the auditor to the council. These provisions are contained under section 60 of the Local Government Act. An auditor shall, after completing an extraordinary audit of the accounts of a council and his/her investigations, if any, make his/her report to the Minister and shall submit a copy of the report to the council. The Minister shall, within sixty days of the receipt of the report under subsection (3) of section 60 of the Local Government Act, consider the report and shall thereafter take such action, as he/she may consider appropriate in the circumstances. The Minister may, at any time, appoint a person to inspect all or any of the accounts of a council and the provisions of subsection (40) shall apply accordingly. 20.2 ELEMENTS OF AUDIT AREA
An audit on investigation shall be as contained in the Ministerial appointment letter on any such authority as may be applicable. 20.3 AUDIT OBJECTIVE
To ensure all the terms of appointment are adequately addressed. 20.4 CRITICAL ASSERTIONS.
Critical assertions will be determined by the specific audit area being targeted. 20.5 AUDIT STEPS
Steps applicable would be such as to meet the specific terms of appointment.
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Final
CHAPTER 21 VALUE FOR MONEY

Value For Money (VFM) audits are governed by covenants entered between the financier on the one hand and the implementer on the other. The financier may not necessarily be one donor but may comprise a consortium of donors. The consortium of donors may itself be regulated by provisions contained in respective constituting documents such as Memorandum of Understanding (MoU). VFM audits are sometimes referred to as Quality of Expenditure Reviews (QoERs). 21.2 ELEMENTS OF AUDIT AREA
The elements constituting the area of audit would usually be all activities funded under a particular Financing Agreement. The element would include: a) b) c) 21.3 construction works; technical Assistance (TA); and procurement of good and services AUDIT OBJECTIVE
The audit objective for such audits is to give the financier comfort and assurance that moneys advanced to a particular implementing agency have been used for the intended purpose and the level and quality of output or results are commensurate with the level of expenditure incurred. 21.4 CRITICAL ASSERTIONS
Existence Occurrence Completeness Rights and obligations Presentation/disclosure
All recorded assets exist All recorded transactions occurred All revenues and expenses have been recorded The recipient was party to the financing agreement All income and expenses have been properly presented and disclosed
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Typically the VFM audits would include some of the following steps: 1 Obtain the financial management reports and disbursement requests from the implementing agency and cash flow requests to financiers for the period under review and request for the supporting documentation for the expenditures. For each expenditure in the cash book, perform the following and evaluate the adequacy of the supporting documentation which should normally include one or more of the following: a) b) c) d) e) f) g) h) i) j) 2 3 procurement documents (bid documents, invitation, evaluation, award); purchase contract; purchase order; letter of credit; suppliers invoice and certificate of origin; shipping or import documents and inspection certificates; contractors invoices or certificates; other evidence of receipt of goods or services; authorization for payment; and evidence of payment/bank statements.
Obtain Accounting records of approvals, disbursements, and balances available; Obtain evidence that refunds have been made by suppliers and corresponding adjustments made in subsequent applications in instances where goods have been returned; Ascertain that the expenditure was properly authorized and approved; Verify that the expenditure is eligible. Ineligible expenditures would include: a) b) duplicate invoices; payments made in advance of receipt of goods or delivery of services, unless these payments are consistent with contract provisions and are established commercial practice; payments that are not supported by any documentation; payments for items that are not procured in accordance with the MoU; payments for items from countries that are not eligible under the Procurement Guidelines; payments for items not specified in the approved procurement plan; and verify the mathematical accuracy.
4 5
c) d) e) f) g)
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Final 6 7 8 9 Verify that the proper amount was requested for disbursement from the respective commercial bank. Where appropriate and practical, physically observe significant items purchased on a test basis to confirm their existence. For allowances paid out, check and verify that they are in line with the Government agreed rates. Specifically check that travel rates are adhered to and that allowances are not being paid in addition to provision for meals and boarding for both local and international travel, conferences, training and workshops. Review the systems of processing disbursement applications paying particular attention to review processes and how long it takes to submit such applications to a commercial Bank. In addition to Technical Assistance and procurement of goods and services, VFM audits also cover capital projects. For purposes of this Manual capital projects are restricted to construction works. Broadly capital project audits are guided by the following three principles: a) b) c) what worked well?; what could have been done well? what recommendations do you have as an auditor for future capital projects?
10
The major control areas for a capital projects are: a) contracting methods; and
b)
contractor controls
Under contracting methods, an auditor should categorise a capital project under the following: a) fixed price contract; and
b)
cost plus
Controls over contractors should seek to identify: a) deviations from contract provisions;
b)
lax scope definitions; and
c)
substandard output compared to approved specifications (specs)
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CHAPTER 22 DONOR FUNDS

Audits of donor funded programmes are governed by covenants entered into between the financier on the one hand and the implementer on the other. The financier may not necessarily be one donor but may comprise a consortium of donors. The consortium of donors may itself be regulated by provisions contained in respective constituting documents such as Memorandum of Understanding (MoU). 22.2 ELEMENTS OF AUDIT AREA
Elements covered by audits of donor funded programs include: a) b) c) d) 22.3 revenue; expenses; construction contracts; procurement of goods and services
AUDIT OBJECTIVE
Audit objectives when auditing donor funded programs include confirming that the programme: a) meets programme goals and objectives; b) adequately safeguards and efficiently utilize resources; c) obtains, maintains, and fairly discloses reliable data; and d) complies with applicable laws and regulations 22.4 CRITICAL ASSERTIONS
Existence Occurrence Completeness Rights and obligations Presentation/disclosure
All recorded assets exist All recorded transactions occurred All revenues and expenses have been recorded The recipient was party to the financing agreement All income and expenses have been properly presented and disclosed
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Obtain the financial management reports and disbursement requests from the implementing agency and cash flow requests to financiers for the period under review and request for the supporting documentation for the expenditures. For each expenditure in the cash book, perform the following and evaluate the adequacy of the supporting documentation which should normally include one or more of the following: a) procurement documents (bid documents, invitation, evaluation, award) b) purchase contract c) purchase order d) letter of credit e) suppliers invoice and certificate of origin f) shipping or import documents and inspection certificates
g) contractors invoices or certificates h) other evidence of receipt of goods or services i) j) authorization for payment evidence of payment/bank statements
k) obtain Accounting records of approvals, disbursements, and balances available 2 3 4 Obtain evidence that refunds have been made by suppliers and corresponding adjustments made in subsequent applications in instances where goods have been returned; Ascertain that the expenditure was properly authorized and approved; Verify that the expenditure is eligible. Ineligible expenditures would include: a) duplicate invoices b) payments made in advance of receipt of goods or delivery of services, unless these payments are consistent with contract provisions and are established commercial practice; c) payments that are not supported by any documentation; d) payments for items that are not procured in accordance with the MoU, e) payments for items from countries that are not eligible under the Procurement Guidelines; and f) payments for items not specified in the approved procurement plan;
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Final 5 6 7 8 Verify the mathematical accuracy; Verify that the proper amount was requested for disbursement from the respective commercial bank; Where appropriate and practical, physically observe significant items purchased on a test basis to confirm their existence; For allowances paid out, check and verify that they are in line with the Government agreed rates; Specifically check that travel rates are adhered to and that allowances are not being paid in addition to provision for meals and boarding for both local and international travel, conferences, training and workshops.
10 Review the systems of processing disbursement applications paying particular attention to review processes and how long it takes to submit such applications to a commercial Bank
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Final
CHAPTER 23 CONCLUDING PROCEDURES

This chapter seeks to provide guidance to the audit team on what needs to be done as part of the concluding or field-work wrap-up procedures. These procedures are presented below in the form of audit steps: 1 2 Summarize related party transactions that occurred during the year. Updating Procedures: a) obtain reports of internal auditors issued subsequent to the audit planning and consider the effect on the financial statements and the audit procedures. b) if such reports are not completed, discuss their status with the internal auditors, arrange to receive copies when issued and determine that the audit procedures appropriately addressed their issues. c) update to the audit report date the review of the minutes of stockholder, directors', audit committee, and other significant committee meetings. 3 Journal Entries (standard and non-standard) and other adjustments: a) identify significant journal entries and other adjustments made throughout the period. b) document the procedures performed to ensure that all sources of journal entries and other adjustments were identified. c) examine the underlying support for all entries identified. d) identify all significant entries related to accounting estimates and examine the underlying support. e) determine whether the entries are proper and approved by the appropriate personnel. 4 Enquire of individuals involved in the financial reporting process as to: a) whether they were requested to make unusual entries during the period; and b) the possibility of accounting misstatements resulting from adjusting or other entries made during the year. If exceptions are identified during the performance of these procedures, consult with the Final Review Auditor.
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Final 5 Subsequent events: a) indicate the date to be used on audit report letter. b) obtain the latest available subsequent period financial statements: i) compare the financial statements at the subsequent date to those at the audit date.
ii) determine whether information in such statements has a bearing on the financial statements at the audit date. c) update to the above date, the subsequent events reviews, and investigate potentially material transactions or events: i) cash receipts;
ii) cash disbursements; iii) voucher register; iv) unmatched receiving reports; v) unprocessed invoices; and vi) adjusting journal entries. d) if there are events that materially affect the financial statements, consider whether they are properly accounted for and adequately disclosed in the financial statements. 6 Management Representations a) i) inquire of management: any substantial contingent liabilities or commitments at the balance sheet date or date of inquiry ii) any significant changes in borrowings, or liquidity from the balance sheet date to the date of inquiry; iii) different outcomes, or revisions, of items accounted for in the financial statements based on tentative, preliminary, or inconclusive data; iv) any modifications or revisions of any significant transactions or agreements that were not previously disclosed to the auditor; v) any events or conditions beyond the period of assessment used by management for going concern consideration that may cast significant doubt on the Council's ability to continue as a going concern; vi) any significant or unusual adjustments made during the period since the balance sheet date; vii) any significant changes in internal control since the balance sheet date that might affect financial reporting; and viii) document the participants in these discussions and the results.
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Final
Draft a comprehensive representation letter: a) b) c) tailor letter for appropriate circumstances; include appropriate representations about related party transactions; include representation that management has concluded that uncorrected financial statement misstatements are immaterial, both individually and in the aggregate, to the financial statements taken as a whole; include or attach the summary of uncorrected misstatements; and dated as of the date of the audit report.
d) e) 8
Audit Differences a) determine that all adjusting and reclassification journal entries have been properly posted to the appropriate lead schedules. b) review proposed audit adjustments with appropriate management. c) summarize uncorrected misstatements aggregated on the summary of unrecorded misstatements. i) consider the qualitative and quantitative aspects of financial statement materiality;
ii) consider whether individually or in the aggregate these differences are material to the financial statements; iii) aggregate uncorrected misstatements are material, identify individual items that should be changed to adjusting entries to bring the aggregate uncorrected misstatements within financial statement materiality; iv) consider the effects of uncorrected misstatements on segments, loan covenants, individual line item amounts, subtotals, totals and ratios implied in the financial statements; v) consider the cumulative effect of misstatements from prior years; and vi) document the basis for conclusion. 9 Consider whether any identified misstatements may be indicative of potential fraud, and if so, consult with the engagement partner.
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Final 10 Going Concern Considerations: a) the assessment of the inherent risk indicators identified a risk that the Council may be unable to continue in existence. Consider the results of the audit work and whether the Council can continue in existence for the next twelve months and if significant doubt exists, reanswer the questions associated with "Concluding Procedures" and rework the modified section. b) confirm with related and third parties the details of arrangements to provide or maintain financial support and assessment of financial ability of such parties to provide additional funds. 11 Financial Statements and Audit Report a) obtain or prepare the draft financial statements and related notes. b) determine whether they appear to be in accordance with Generally Accepted Accounting Principles (GAAP) and firm policies. 12 13 14 15 16 17 18 19 20 If there has been a change to any accounting policies, confirm that the change is appropriate and has been properly accounted for and adequately disclosed. Agree to the final lead sheet trial balance and supporting work papers. Agree amounts in footnotes to permanent files or work-papers. Prove clerical and mathematical accuracy. Recalculate percentages and computations. Verify that references within the draft financial statements are accurate. Draft an appropriate audit report. Complete a financial statements disclosure checklist. Prepare a summary of significant matters.
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Final
PART III REPORTING AND INTERNAL AUDIT CHAPTERS 24 - 25
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Final
CHAPTER 24 REPORTING
Summary This chapter provides an overview of international reporting standards. The emphasis is that these standards be followed where local professional standards are less than those required by International Standards on Auditing. On a local regulatory front, the Minister of Local Government and Housing is empowered under the Local Government Act Cap 281 s52(1) of the Laws of Zambia to appoint Local Government Auditors. The Minister can thus appoint auditors from within the MLGH, Auditor Generals Office and the Private sector. 24.1 INTRODUCTION This Chapter contains guidance on reporting matters that are taken from International Standards on Auditing. Reporting standards usually apply on a country and sector specific basis. If the auditing standards that a public auditor is following do not cover reporting issues, then guidance in this Chapter is followed. International standards and guidance on auditing and reporting include a glossary of terms and distinguishes audits from related services. 24.2 DEFINITIONS International standards contain the following definitions relating to audit reporting: a) Opinion A clear written expression of the conclusion on the presentation of the financial statements taken as a whole. An unqualified opinion is expressed when it is concluded that the financial statements give a true and fair view (or are presented fairly, in all material aspects) in accordance with the identified reporting framework.; b) Modified auditors report An auditors report is considered to be modified if either an emphasis-of-matter paragraph is added to the report or if the opinion is other than unqualified. c) Emphasis-of-matter paragraph An auditors report may be modified by adding an emphasisof-matter paragraph to highlight a matter affecting the financial statements, which is usually included in a note to the financial statements that more extensively discusses the matter. The addition of such a paragraph does not affect the overall auditors opinion. An emphasis-ofmatter paragraph may also report matters other than those affecting the financial statements (e.g., such paragraph might describe a material inconsistency in a document and the financial statements.) d) Qualified opinion A qualified opinion is expressed when an unqualified opinion cannot be expressed but that the effect of any disagreement with management (on the acceptability of accounting policies selected, their method of application, or adequacy of disclosure) or limitation on audit scope is not so material and pervasive as to require an adverse opinion or disclaimer of opinion. e) Adverse opinion An adverse opinion is expressed when the effect of a disagreement (on selection or consistent application of accounting policies or adequacy of disclosure) is so material and pervasive to the financial statements that it is concluded that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements.
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Final f) Disclaimer of opinion A disclaimer is expressed when a limitation on audit scope is so material and pervasive that the auditor has not been able to obtain sufficient and appropriate audit evidence and accordingly the auditor is unable to express an opinion on the financial statements.
g) Limitation of scope A limitation on the scope of the auditors work may sometimes be imposed by the Council (e.g., when the terms of the engagement specify that the auditors will not carry out an audit procedure that is believed to be necessary). A scope limitation may be imposed by the circumstances (e.g., when the timing of the appointment is such that the auditor is unable to observe the counting of physical inventories and we cannot overcome this by alternative procedures). It may also arise when the councils accounting records are inadequate or when the auditor is unable to carry out an audit procedure believed desirable. h) Scope the ability by the auditor to perform audit procedures deemed necessary in the circumstances.
24.3
THE AUDITORS REPORT The auditors report should include the following basic elements, ordinarily in the following layout: a) title; b) addressee; c) opening or introductory paragraph; i) ii) identification of the financial statements audited statement of the responsibility of the Councils management and the responsibility of the auditor
d) scope paragraph (describing the nature of an audit) i) ii) a reference to International Standards on Auditing or to the relevant national standards or practices; and a description of the work the auditor has performed
e) opinion paragraph containing an expression of opinion on the financial statements; f) date of the report;
g) auditors address; and h) auditors signature. To promote the readers understanding of the report and to identify unusual circumstances when they occur, a measure of uniformity in the form and content of the auditors report is desirable.
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Final 24.4 ELEMENTS OF THE AUDITORS REPORT
Title The auditors report should have an appropriate title. It may be appropriate to use the term Independent Auditor in the title to distinguish the auditors report from reports that might be issued by others, such as by officers of the Council, the Board of Directors, or from the reports of other auditors who may not have to abide by the same ethical requirements as the independent auditor. Addressee The auditors report should be appropriately addressed as required by the circumstances of the engagement and local regulations. The report is ordinarily addressed either to the shareholders or the board of directors of the Council whose financial statements are being audited. In the case of the Local Authority, the report would be addressed to the Mayor who is the Chair of Council and copied to the Minister (MLGH), Head of Section responsible for Finance and Audits in the Directorate of Local Government Administration and the PLGO. Introductory Paragraph The report should identify the financial statements of the Council that have been audited, including the date of and period covered by the financial statements. Financial statements are the representations of management. The preparation of such statements requires management to make significant accounting estimates and judgments, as well as to determine the appropriate accounting principles and methods used in preparation of the financial statements. In contrast, the auditors responsibility is to audit these financial statements in order to express an opinion thereon. Accordingly, the report should also include a statement that the financial statements are the responsibility of the Councils management and a statement that the auditors responsibility is to express an opinion on the financial statements based on the audit. An illustration of these matters in an opening (introductory) paragraph is: We have audited the accompanying Balance Sheet of the ABC Council as of December 31, 20X0, and the related statements of Income and Cash Flows for the year then ended. These financial statements are the responsibility of the Councils management. Our responsibility is to express an opinion on these financial statements based on our audit. Scope Paragraph The auditors report should describe the scope of the audit by stating that the audit was conducted in accordance with International Standards on Auditing or in accordance with relevant national standards or practices as appropriate. Scope refers to the auditors ability to perform audit procedures deemed necessary in the circumstances. The reader needs this as an assurance that the audit has been carried out in accordance with established standards or practices. The report should include a statement that the audit was planned and performed to obtain reasonable assurance about whether the financial statements are free of material misstatement.
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Final The auditors report should describe the audit as including: a) examining, on a test basis, evidence to support the financial statement amounts and disclosures; b) assessing the accounting principles used in the preparation of the financial statements; c) assessing the significant estimates made by management in the preparation of the financial statements; and d) evaluating the overall financial statement presentation. The report should include a statement that the audit provides a reasonable basis for the opinion. An illustration of these matters in a scope paragraph is: We conducted our audit in accordance with International Standards on Auditing (or refer to relevant national standards or practices). Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Opinion Paragraph The report should clearly state our opinion as to whether the financial statements give a true and fair view (or are presented fairly, in all material respects,) in accordance with the financial reporting framework and, where appropriate, whether the financial statements comply with statutory requirements. The terms used to express the auditors opinion are give a true and fair view or present fairly, in all material respects, and are equivalent. Both terms indicate, amongst other things, that we consider only those matters that are material to the financial statements. The opinion paragraph of the auditor's report should clearly indicate the financial reporting framework used to prepare the financial statements (including identifying the country of origin of the financial reporting framework when the framework used is not International Accounting Standards) and state the auditor's opinion as to whether the financial statements give a true and fair view (or are presented fairly, in all material respects,) in accordance with that financial reporting framework and, where appropriate, whether the financial statements comply with statutory requirements In addition to an opinion on the true and fair view, the auditors report may need to include an opinion as to whether the financial statements comply with other requirements specified by relevant statutes or law e.g. Local Government Act, Local Government Financial Regulations.
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Final An illustration of these matters in an opinion paragraph is: In our opinion, the financial statements give a true and fair view of (or -- present fairly, in all material respects) the financial position of the Council as of December 31, 200X, and of the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted and comply with relevant provisions of the Local Government Act. Date of Report The report should be dated as of the completion date of the audit. This informs the reader that the Auditor has considered the effect on the financial statements and on the report of events and transactions of which he/she became aware of and that occurred up to that date. Since the Auditors responsibility is to report on the financial statements as prepared and presented by management, International Standards on Auditing provide that the report should not be dated earlier than the date on which the financial statements are signed or approved by management. Auditors Address The report should name a specific location, which is ordinarily the city of the responsible office. Auditors Signature The report should be signed in the name of the audit Council, the personal name of the auditor or both, as appropriate. The report is ordinarily signed in the name of the audit organisation because the organisation assumes responsibility for the audit.
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Final 24.5 STANDARD REPORT
An unqualified opinion should be expressed when it is concluded that the financial statements are free of material misstatements and give a true and fair view in accordance with the reporting framework. The following is an illustration of the auditors report incorporating the basic elements set forth above. Organisation letterhead REPORT OF INDEPENDENT AUDITORS To the Councilors We have audited the balance sheet of (name) as of December 31, 20X0) and the related statements of income and cash flows for the year then ended. These financial statements are the responsibility of the Councils management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted Public Sector Auditing Standards. These standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements give a true and fair view of (or present fairly, in all material respects) the financial position of the Council and of the results of its operations (and its cash flows) in accordance with accounting principles generally accepted. Address Date Signature
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Final 24.6 MODIFIED REPORTS
The auditors report is considered to be modified in the following situations: Matters That Do Not Affect the Auditors Opinion a) emphasis of matter
Matters That Do Affect the Auditors Opinion a) b) c) qualified opinion; disclaimer of opinion, or adverse opinion.
Uniformity in the form and content of each type of modified report will further the users understanding of such reports. Accordingly, this International Standards on Auditing include suggested wording to express an unqualified opinion as well as examples of modifying phrases for use when issuing modified reports. We should modify the auditors report by adding a paragraph highlighting a material matter regarding a going concern uncertainty. We should consider modifying the report by adding a paragraph if there is a significant uncertainty (other than a going concern problem), the resolution of which is dependent upon future events and which may affect the financial statements. A qualified opinion should be expressed when we conclude that an unqualified opinion cannot be expressed but that the effect of any disagreement with management, or limitation on scope is not as material and pervasive as to require an adverse opinion or a disclaimer of opinion. A qualified opinion should be expressed as being except for the effects of the matter to which the qualification relates. A disclaimer of opinion should be expressed when the possible effect of a limitation on scope is so material and pervasive that we have not been able to obtain sufficient appropriate audit evidence and accordingly are unable to express an opinion on the financial statements. An adverse opinion should be expressed when the effect of a disagreement is so material and pervasive to the financial statements that we conclude that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements. Whenever we express an opinion that is other than unqualified, a clear description of all the substantive reasons should be included in the report and, unless impracticable, a quantification of the possible effect(s) on the financial statements. When there is a limitation on the scope of our work that requires expression of a qualified opinion or a disclaimer of opinion, the report should describe the limitation and indicate the possible adjustments to the financial statements that might have been determined to be necessary had the limitation not existed. We may disagree with management about matters such as the acceptability of accounting policies selected, the method of their application, or the adequacy of disclosures in the financial statements.
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Final If such disagreements are material to the financial statements, we should express a qualified or an adverse opinion. Detailed guidelines on modified reports are contained in International Standards on Auditing. 24.7 COMPARATIVE FINANCIAL STATEMENTS
When comparative financial statements are issued, we should determine whether the comparatives comply in all material respects with the financial reporting framework relevant to the financial statements being audited. The auditor should obtain sufficient appropriate audit evidence that the corresponding figures meet the requirements of the relevant financial reporting. The extent of audit procedures performed on the corresponding figures is significantly less than for the audit of the current period figures and is ordinarily limited to ensuring that the corresponding figures have been correctly reported and are appropriately classified. When the comparatives are presented as corresponding amounts, the auditor should issue an audit report in which the comparatives are not specifically identified because the auditors opinion is on the current period financial statements as a whole, including the corresponding amounts. When the auditors report on the prior period, as previously issued, included a qualified opinion, disclaimer of opinion, or adverse opinion and the matter which gave rise to the modification is: a) unresolved, and results in a modification of the auditors report regarding the current period figures, the auditors report should also be modified regarding the corresponding amounts; or b) unresolved, but does not result in a modification of the auditors report regarding the current period figures, the auditors report should be modified regarding the corresponding amounts. When performing the audit of the current period financial statements, in certain unusual circumstances, we may become aware of a material misstatement that affects the prior period financial statements on which an unmodified report has been previously issued. In such circumstances, we should consider the guidance on subsequent events below and: a) if the prior period financial statements have been revised and reissued with a new auditors report, the auditor should be satisfied that the corresponding amounts agree with the revised financial statements; or if the prior period financial statements have not been revised and reissued, and the corresponding amounts have not been properly restated and/or appropriate disclosures have not been made, the auditor should issue a modified report on the current period financial statements modified with respect to the corresponding figures included therein.
b)
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Final 24.8 OTHER AUDITORS
In some jurisdictions, the incoming auditor is permitted to refer to the predecessor auditors report on the corresponding amounts in the incoming auditors report for the current period. When the auditor decides to refer to another auditor, the incoming auditors report should indicate: a) b) that the financial statements of the prior period were audited by another auditor; the type of report issued by the predecessor auditor and, if the report was modified, the reasons therefore; and the date of that report.
c)
When the prior period financial statements are not audited, the incoming auditor should state in the auditors report that the corresponding figures are not audited. Such a statement does not, however, relieve the auditor of the requirement to perform appropriate procedures regarding opening balances of the current period. Clear disclosure in the financial statements that the corresponding figures are not audited is encouraged. In situations where the incoming auditor identifies that the corresponding figures are materially misstated, the auditor should request management to revise the corresponding figures or if management refuses to do so, appropriately modify the report. The auditor should obtain sufficient appropriate audit evidence that the comparative financial statements meet the requirements of the relevant financial reporting framework. When the comparatives are presented as comparative financial statements, the auditor should issue a report in which the comparatives are specifically identified because the auditors opinion is expressed individually on the financial statements of each period presented. When reporting on the prior period financial statements in connection with the current years audit, if the opinion on such prior period financial statements is different from the opinion previously expressed, the auditor should disclose the substantive reasons for the different opinion in an emphasis of matter paragraph. When the financial statements of the prior period were audited by another auditor a) b) the predecessor auditor may reissue the audit report on the prior period with the incoming auditor only reporting on the current period; or the incoming auditors report should state that the prior period was audited by another auditor and the incoming auditors report should indicate: i) ii) that the financial statements of the prior period were audited by another auditor the type of report issued by the predecessor auditor and if the report was modified, the reasons therefore; and the date of that report.
iii)
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Final In performing the audit on the current period financial statements, the incoming auditor, in certain unusual circumstances, may become aware of a material misstatement that affects the prior period financial statements on which the predecessor auditor had previously reported without modification. In these circumstances, the incoming auditor should discuss the matter with management and, after having obtained managements authorization, contact the predecessor auditor and propose that the prior period financial statements be restated. If the predecessor agrees to reissue the audit report on the restated financial statements of the prior period, the auditor should follow the guidance above. In situations where the incoming auditor identifies that the prior years unaudited figures are materially misstated, the auditor should request management to revise the prior years figures or if management refuses to do so, appropriately modify the report. 24.9 PRIOR PERIOD FINANCIAL STATEMENTS NOT AUDITED
When the prior period financial statements are not audited, the incoming auditor should state in the auditors report that the comparative financial statements are unaudited. In situations where the incoming auditor identifies that the prior year unaudited figures are materially misstated, the auditor should request management to revise the prior years figures or if management refuses to do so, appropriately modify the report. 24.10 SUBSEQUENT EVENTS
Facts Discovered After the Date of the Auditors Report but Before the Financial Statements are Issued
The auditor does not have any responsibility to perform procedures or make any inquiry regarding the financial statements after the date of the auditors report. During the period from the date of the auditors report to the date the financial statements are issued, the responsibility to inform the auditor of facts, which may affect the financial statements, rests with management. When, after the date of the auditors report but before the financial statements are issued, the auditor becomes aware of a fact which may materially affect the financial statements, the auditor should consider whether the financial statements need amendment, should discuss the matter with management, and should take the action appropriate in the circumstances. When management does not amend the financial statements in circumstances where the auditor believes they need to be amended and the auditors report has not been released to the Council, the auditor should express a qualified opinion or an adverse opinion.
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Final 24.11 FACTS DISCOVERED AFTER THE FINANCIAL STATEMENTS HAVE BEEN ISSUED
After the financial statements have been issued, the auditor has no obligation to make any inquiry regarding such financial statements. When, after the financial statements have been issued, the auditor becomes aware of a fact which existed at the date of the auditors report and which, if known at that date, may have caused the auditor to modify the auditors report, the auditor should consider whether the financial statements need revision, should discuss the matter with management, and should take the action appropriate in the circumstances. The new auditors report should include an emphasis of a matter paragraph referring to a note to the financial statements that more extensively discusses the reason for the revision of the previously issued financial statements and to the earlier report issued by the auditor. 24.12 OFFERING OF SECURITIES TO THE PUBLIC
In cases involving the offering of securities to the public, the auditor should consider any legal and related requirements applicable to the auditor in all jurisdictions in which the securities are being offered. For example, the auditor may be required to carry out additional audit procedures to the date of the final offering document. These procedures would ordinarily include performing the procedures referred to in Chapter 14 up to a date at or near the effective date of the final offering document. It would also include reading the offering document to assess whether the other information in the offering document is consistent with the financial information with which the auditor is associated. 24.13 OTHER INFORMATION
International Standards on Auditing provide guidance on an auditors responsibility for consideration of other information, on which the auditor has no obligation to report, in documents containing auditing financial statements. 24.14 MATERIAL INCONSISTENCIES The auditor should read the other information to identify material inconsistencies with the audited financial statements. If, on reading the other information, the auditor identifies a material inconsistency, the auditor should determine whether the audited financial statements or the other information needs to be amended. If an amendment is necessary in the audited financial statements and the council refuses to make the amendment, the auditor should express a qualified or adverse opinion and the auditor should consider including in the auditors report an emphasis of matter paragraph describing the material inconsistency or taking other actions. The actions taken, such as not issuing the auditors report or withdrawing from the engagement, will depend upon the particular circumstances and the nature and significance of the inconsistency. The auditor would also consider obtaining legal advice as to further action.
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Final 24.15 MATERIAL MISSTATEMENTS OF FACT
If the auditor becomes aware that the other information appears to include a material misstatement of fact, the auditor should discuss the matter with the councils management. When the auditor still considers that there is an apparent misstatement of fact, the auditor should request management to consult with a qualified third party, such as the councils legal counsel and should consider the advice received. If the auditor concludes that there is a material misstatement of fact in the other information which management refuses to correct, the auditor should consider taking further appropriate action. When revision of the other information is necessary but management refuses to make the revision, the auditor should consider taking further appropriate action. 24.16 REPORT TO MANAGEMENT In order for the outcome of a particular audit to be more meaningful and serve as means of assisting council to improve their operations, the auditor also produces a report to management besides an audit report. A report to management serves as a business advisory tool. In it the auditor highlights: a) b) c) d) major internal control weaknesses as well as managerial deficiencies and recommendations for improvements; any non-compliance with pertinent legislation and agreements; any non-compliance with accounting standards and any irregularities or deficiencies which may come to the auditors notice; and any opportunities for improved utilisation of accounting, financial and other resources.
The report to management should have a section for the Council management to respond to the observation of the auditor raised in the report. It is advisory that management responds before this report is signed off. 24.17 RECORD KEEPING
Once the audit has been complemented, documentation will be generated between that to be owned by the auditee on the one hand and the auditor on the other. Audit Working Papers are the property of the auditor while the Audit Report and Report to Management are the property of the auditee. Permanent Audit Files (PAFs) which should contain information of a permanent nature about a council should be kept at a central location such as the PLGOs office while the Current Working File (CAF) which should contain information for the audit period under consideration could be kept by the auditors at their respective duty stations. 24.18 ACTION TAKEN ON AUDIT REPORTS Pursuant to the provisions of the Local Government Act, Cap 281 section 56(2), a council is supposed to address weaknesses or irregularities raised in the audit report and report to the Minister indicating what action has been taken and what recommendations have been made to the Minister
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Final which require his or her attention within 60 days of receipt of such a report by a council. The Action Taken Report would initially be studied by the PS to verify whether or not the council in question has addressed issues raised before recommending to the Minister. It is the responsibility of the PLGO to ensure that a council complies with the provisions of the Act. 24.19 PREPARATION OF THE MINISTERS EXECUTIVE REPORTS The PS shall prepare a Ministers Executive Report on the audited accounts of councils for submission to the committee on Local Governance, Housing and Chiefs Affairs at Parliament. The PS shall also prepare an Action Taken Report on the recommendations of the Committee on Local Governance, Housing and Chiefs affairs for submission to Parliament. 24.20 EXIT MEETINGS
Auditors should hold an Exit Meeting (debriefing) with council management at the end of the audit but before leaving the council being audited in order to brief management on the findings of the auditor.
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CHAPTER 25 INTERNAL AUDIT

25.1 INTRODUCTION Every Council shall maintain an Internal Audit Section in accordance with the provisions of the Local Government Act (LGA) no 22 of 1991 and the Local Government Financial Regulations 1992 as amended by Statutory Instrument No 25 of 1992. 25.2 DEFINITION The CIPFA Code of Practice 2003 defines Internal Audit as "an assurance function that primarily provides an independent and objective opinion to the council on the control environment comprising risk management, control and governance by evaluating its effectiveness in achieving the councils objectives. It objectively examines, evaluates and reports on the adequacy of the control environment as a contribution to the proper economic, efficient and effective use of resources." Internal Audit is part of Council management tools. 25.3 FUNCTIONS OF LOCAL GOVERNMENT INTERNAL AUDITORS The functions of an Internal Auditor of a Local Authority are prescribed under s25 of the Financial Regulations. The functions under the provisions of the Local Government Act are to ensure that: a) the receipt and payment of council money has been properly carried out under proper supervision; b) the safeguards (controls) for the prevention of prompt detection of fraud or loss of stores, cash or other council assets are adequate; c) d) e) f) the accounting forms are properly protected, recorded and regularly checked; the system for the control of the receipt, issue and use of stores is adequate; the recording of assets is up to date and correct; and the returns of revenue or expenditure required by the council are correctly prepared and promptly. Although council operations are governed by the provisions of the LGA 1991, Local Government Internal Auditors functions and conduct should be aligned to a global village of Internal Auditors. Therefore their conduct should also be influenced by the provisions of Public Sector professional and regulatory pronouncements such as the CIPFA Code of Practice for Internal Audit in Local Government and CIPFA Local Government Internal Audit Manual.
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Final 25.4 PLANNING INTERNAL AUDIT WORK It is recommended that Internal Auditors use risk based planning methodology in consultation with the Town Clerk or Council Secretary to produce an AAWP, with Departmental Heads and the Councils Audit Committee. In addition to this planned work, the internal audit function undertakes special investigations at the request of councilors or council executive management. In planning their work therefore, the Internal Auditors should cover their functions as enshrined in the LGA and those under role and objectives of Internal Audit covered in the respective section below and any other area covering council operation. 25.5 INTERNAL VS. EXTERNAL AUDIT
The relationship between Internal and External Audits takes account of their differing roles and responsibilities: a) internal Audit is an independent appraisal function within the Council. It is part of the management tool of the Council management b) external Audit has a statutory responsibility to express an independent opinion on the accounts, performance management and the financial aspects of corporate governance. 25.6 INDEPENDENCE AND REPORTING
Internal Audit is an independent unit within the Town Clerks or Council Secretarys Office. To ensure its independence, the Head of Audit has a right of access to the Town Clerk or Council Secretary and/or to the chairman of the Council should circumstances warrant such. In addition, there is a right of access to all Councilors as a matter of last resort. Ordinarily, reports generated by an Internal Auditor should be addressed to the Town Clerk or Council Secretary and copied to the PLGO and MLGH while for special assignments made at the request of Councilors, the report should be addressed to the Council Chairman and copied to the Town Clerk or Council Secretary, PLGO and MLGH b) the Head of Audit is responsible: i) in managerial terms to the Director of Corporate Services; ii) for the performance of the Unit to the Resources Scrutiny Committee c) the Head of Audits responsibilities to the Resources Scrutiny Committee include: i) ii) presenting and obtaining approval of the annual Audit Plan; reporting annually the Units performance against the agreed Performance Indicators
iii) reporting half-yearly on work undertaken by the Unit including any fraud and irregularity investigations; iv) reporting any serious weaknesses found in the internal control systems, and any instances where corrective action has not been taken by the Head of Service concerned
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Final v) reporting any instances where responses to audit reports have not been received within three months of the issue of draft and final audit reports, and any instances where agreed Audit recommendations have not been actioned within an acceptable timescale.
25.7
ROLE AND OBJECTIVES
The role and objectives of Internal Audit include the following: a) review and assess the soundness, adequacy and reliability of financial, management and performance systems and data b) review and assess the effectiveness of internal controls and make recommendations to improve these where appropriate c) review and assess procedures to check that the Councils assets and interests are adequately protected and risks are identified and effectively managed d) check for compliance with legislation, Council policies and procedures e) promote and assist the Council in the effective use of resources f) undertake independent investigations regarding allegations of fraud and irregularity in accordance with Council policies and procedures and relevant legislation STANDARDS
25.8
The Councils Internal Audit Unit complies with: a) all Council rules and policies, and promotes compliance throughout the Council; b) relevant auditing standards, for example, the CIPFA Code of Practice for Internal Audit in Local Government Internal Audit staff are expected at all times to adopt a professional, reliable, independent and innovative approach to their work. It is essential that Audit staff are seen to be impartial. Should a situation arise where an Auditors impartiality could be questioned, then another Auditor will be assigned to undertake the task concerned 25.9 RELATIONSHIPS The General relationships include: Councilors, the Town Clerk or Council Secretary and Directors, Heads of Service Lines, managers, Council employees, Audit Committee and other external organisations staff, and occasionally members of the public. In all of these relationships the person/s concerned will be treated with respect, courtesy, politeness and professionalism The main internal contact of the Internal Auditor is with other Council employees. Internal Auditors will ensure that they explain to the person/s concerned the purpose of the audit and the various stages that the audit will follow. Upon completion of audits, draft audit reports are issued to the relevant line managers for them to confirm the accuracy of the audit findings. Managers are invited to contact the Auditor if they wish to discuss the report, and are provided with a Managers Response Form to enable them to respond to the
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Final recommendations made. For accepted recommendations, dates for action or implementation are requested. The managers responses are recorded in the final reports that are issued to the managers concerned, the relevant Directors and the Heads of Service. In accordance with professional standards, three-month follow-up audits are undertaken from the date of issue of the final report to ensure that the agreed controls and actions have been implemented. External - the main contacts are with: a) the Audit Commissions employees, who are the Councils external auditors. Internal and External Audit works together to ensure audit resources are used to best advantage for the benefit of the Council. The work performed by Internal Audit is used by the Audit Commission in its auditing of grant claims, performance indicators, final accounts; and b) CIPFA, as the Councils Internal auditors write the Systems Based Auditing control matrices that CIPFA publishes. Without being restricted to the provisions of this chapter only, other aspects affecting the execution of an audit should be as indicated elsewhere in respective chapters of this manual.
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CHAPTER 26 CONCLUSION
The contents of this Manual are not exhaustive, but are meant to provide general guidance to Public Sector auditors. International Public Sector Accounting Standards used in this Manual are as adjusted from respective IFRS and IAS by IFAC and ECSAFA. This adaptation also applies to Auditing Standards. Cognisance is however taken of the fact that specific International Standards on Auditing are in the course of being developed by bodies and Institutions such as INTOSAI. This Manual will thus continue to be periodically revised.
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APPENDIX I SPECIMEN AUDIT PLANNING MEMORANDUM (APM)

Name of Council:. 1 Nature of Council :
ELIGILIBITY TO ACT / INDEPENDENCE REPRESENTATION Indicate if there are factors that render this particular appointment illegal in relation to the provision of the Local Government Act Declare the independence of the auditor or team of auditors from the Council about to be audited LETTER OF APPOINTMENT Provide evidence and an indication that the letter of appointment from the Minister of Local Government is in your custody Provide evidence that the scope of the audit about to be undertaken is in conformity with the provisions of the Ministerial appointment letter REPORTING INSTRUCTIONS Based on the Terms of Reference confirm your reporting responsibilities. Reporting responsibilities PLANNING Indicate the date when a planning meeting was held between officials of the Council to be audited and the appointed Local Government Auditors REVIEW OF EVENTS SINCE LAST YEAR Based on your findings from the planning meeting indicate what new changes have taken pace in the Council since the last audit. PLANNING ANALYTICAL PROCEDURES Based on the preliminary financials collected during the planning meeting indicate what analytical procedures you have already undertaken. Indicate what the gross annual revenue is for this council Indicate what the major revenue source is for this council Indicate what the total staff complement is for this council Compare the actual staff complement with approved establishment ACCOUNTING SYSTEMS Provide an overview of the accounting system being used by this particular Council AUDIT CATEGORISATION Indicate what risk category you think this particular council falls in. AUDIT APPROACH Provide a listing of assertions that you consider critical for the various audit cycles or areas.
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Final 10 ADMINISTRATION Provide an indication of the information that you have requested the Council to provide before the audit can commence. Provide the audit time table Detailing: Date when field work would commence; Date when the team leader would review the field work; Date when the final supervising office would review the work Indicative date of signing the audit report.
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APPENDIX II SPECIMEN AUDIT PROGRAMME

Council: Lusaka City Council Completed by: LM Period Ended: 31/12/2005 Reviewed by: Date: Date: 15/3/06
Audit Area: Revenue
AUDIT STEPS
Test the castings of levies subsidiary ledgers and agree the total with the general ledger control Select a sample of levies revenue source documents and trace them to the recorded transactions a) select a sample of 75 % b) trace each sample item to the recorded transaction (i.e. levies journal) c) evaluate the results of the sample d) discuss exceptions with appropriate council personnel e) record the projected error on the summary of unrecorded misstatements Test cutoff procedures at the end of the prior period. a) inquire of billings and accounting personnel as to the cutoff procedures employed at the end of the prior period. b) review levies journal for a reasonable period prior and subsequent to the end of the prior period, investigate any unusual entries, and document the period covered. c) investigate large and unusual levies transactions that occurred near the close of the prior period. Verify the appropriate cutoff of levies: a) obtain last levies invoice number; b) ascertain that the last levies invoice number was included in the current periods recorded levies; and c) ascertain that the subsequent levies invoice numbers are included in the subsequent periods recorded levies. Scan the levies records for the last business day of the year for large or unusual entries and verify that they were recorded in the proper period.
Work paper Reference
Initials & Date
R1
LM
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Review the levies revenue recognition policies for appropriateness and consistency with the prior year, giving particular attention to: a) effects of new levy types other changing circumstances; and b) one time or unusual transactions. Consider whether transactions may be occurring between the Council and related parties that are not being given appropriate accounting treatment. Consider whether balances or transactions that are large or unusual indicate the existence of a previously undisclosed related party. Obtain or prepare a schedule of levies revenue by month in sufficient detail (e.g. by levies type) and perform the following procedures: a) develop expectations and acceptance ranges; b) compare recorded values to expectations; c) identify significant deviations from the expectations; d) discuss deviations with appropriate Council personnel; and e) consider plausibility of responses and corroborate explanations and responses where appropriate. Confirm all receivable balances or transactions over ZMK., using positive confirmations (coverage should be at least 80% of population value). a) identify accounts using predetermined amounts or criteria; b) prepare confirmations; c) send second requests to non-responding customers; d) for non-responding customers, perform alternative audit procedures; and e) if differences are reported on returned confirmations, document follow-up procedures and results. Discuss unresolved difference with appropriate Council personnel; and Carry audit differences to summary of Unrecorded Misstatements work paper
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Scan the levies journal for significant levies revenue transactions after the confirmation date and trace to supporting documentation. Compare the following ratios to prior periods and to expectations: a) levies debtors/current assets; and b) levies debtors/total assets. Scan the levies revenue accounts in the general ledger for large or otherwise unusual entries: a) large amounts recorded at or near year end; b) large volume of transactions at or near year end; c) unusual posting sources; and d) large journal entries at or near year end. If unusual or complex transactions have been identified, inquire of individuals outside of the accounting department who initiate or process such transactions about the following: a) existence or suspicion of fraud; b) undisclosed side agreements; and c) Activities or directives by management that are out of the ordinary. Test the levies values: a) select 60 items from the file or listing levies; and b) verify the listed values with appropriate council personnel and statutory instrument. Test the allowance for doubtful accounts by: a) Testing the aging of levies receivable subsidiary records: obtain an aging by customer of accounts receivable; and trace relevant documentation on levies and payment activity to verify that levies debtors have been properly aged.
b) Identify customers that potentially pose a credit risk: customers with significant past due accounts
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customers whose credit situation has declined during the year by comparing the aging Levies Debtors by significant customer to that existing at a previous period (e.g.; last year). customers where significant amounts were written off during the year.
c) review identified customers with appropriate council personnel; d) review experience of recoveries of accounts previously written-off; e) develop an estimate (or range) of the f) g) allowance for doubtful accounts; with appropriate council personnel;
h) discuss estimate (or range) of the allowance for doubtful accounts with appropriate council personnel; and i) if any, carry to the summary of unrecorded misstatements the appropriate amount between estimate (or range) and the recorded amount.
Determine subsequent payment of past due accounts by examining remittance advices, bank deposit slips and bank statements. Scan the accounting records for write-offs and other credits to accounts receivable subsequent to the reporting period and determine whether adjustments are required. Examine write-offs and other credits to accounts receivable subsequent to the confirmation date and trace to supporting documentation for authorization and appropriateness. Examine accounts written-off during the year for authorization and appropriateness Compare the following ratios to prior periods and to expectations: allowance for doubtful accounts/accounts receivable; bad debt expense/levies; and average levies receivable collection period.
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Final Conclusion Signed:................................................................ Auditor Date:.................................................................... Signed ...................................................... Final Supervising Auditor Date:..................................................................
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APPENDIX III SPECIMEN INCOME AND EXPENDITURE STATEMENT

Actual for this month A Budget for this month B ZMK Variance % Variances D YTD Actual E ZMK YTD Budget F ZMK YTD Variance G ZMK YTD Variance H
C ZMK
Income Owners rates Ground rates Personal Levy Miscellaneous Income/GRZ grants Standing charges Street vending Market fees Community Income Engineering Income Low Cost Housing Medical Fees Parking Levy Sales of Houses Bus Station Sales of Commercial properties Trading licences: Retail Wholesale Liquor Total Income Wages and Salaries Fuel Spares Suppliers Retirees Training Travel Local Travel Foreign Printing and Stationery Total Expenditure Surplus/(Deficit) of E I-E I
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APPENDIX IV SPECIMEN BALANCE SHEET

Note
ASSETS Non-current assets Fixed assets Current assets Stocks Debtors and advances Bank balances and cash Total assets EQUITY AND LIABILITIES Capital and Reserves 0 0 0 0 Y 0 0 0 0 X 0 0
2006
K000
2005
K000
Deficit in reserve Accumulated loss Current liabilities Creditors and accruals Bank overdrafts Total equity and liabilities
0 0 0
0 0 0
0 0 0 Y
0 0 0 X
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APPENDIX V SPECIMEN TRADING, PROFIT AND LOSS ACCOUNTS

Mazabuka Municipal Council Mazabuka Motel Trading, Profit and Loss Account for the Year Ended 31 December 2005 K Sales Cost of Sales: Opening Stock Add Purchases Less Closing Stock Gross Profit Expenses Salaries and wages Stationery Printing costs Motor vehicle expenses Periodicals and Publications Total Expenses X X X X X (X) X X X (X)
X X
Net Profit/Loss
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APPENDIX VI SPECIMEN CASHFLOW STATEMENT - INDIRECT METHOD

Cash flows from operating activities Profit before taxation Adjustments for Depreciation Foreign exchange loss Investment income Interest expense Increase in trade and other receivables Decrease in inventories Decrease in trade payables Cash generated from operations Interest paid Income taxes paid Net cash from operating activities Cash flows from investing activities Purchase of property, plant and equipment Proceeds from sale of equipment Interest received Dividends received Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share capital Proceeds from long-term borrowings Payment of finance lease liabilities Dividends paid Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period X X (X) (X) ______ (X) ______ X X ______ X ====== (X) X X X ____ (X) X X X (X) X (X) X (X) X (X) (X) X
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APPENDIX VII SPECIMEN EXIT MEETING FORM

MINISTRY OF LOCAL GOVERNMENT AND HOUSING DEPARTMENT OF LOCAL GOVERNMENT LOCAL GOVERNMENT FINANCE & AUDITS UNIT EXIT MEETING FORM
.Council Period:... Query: 1. 2. 3. 4. 5. 6. etc Principal Officer:. Signature:. Date:. Auditor: Signature: Date: Witnessed by:. Signature:. Date:. Witnessed by: Signature: Date:
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APPENDIX VIII GLOSSARY OF TERMS

Action Taken Report A report written by a council addressing issues raised in a In a particular audit for on-ward presentation to Parliament
Audit Evidence
The information auditors obtain in arriving at the conclusions on which their report is based. Audit evidence comprises source documents and accounting records underlying the financial statement assertions and corroborative information from other sources. The partners of a firm or a sole practitioner or a company or organisation providing audit services A formulation of the general strategy for the audit, which sets the direction for the audit, describes the expected scope and conduct of the audit and provides guidance for the development of the audit programme. A set of instructions to the audit team that sets out the audit procedures the auditors intend to adopt and may include reference to other matters such as the audit objectives, timing, sample size and basis of selection for each area. It also serves as a means to control and record the proper execution of the work. The risk that auditors may give an inappropriate audit opinion on financial statements. Audit risk has three components: inherent risk, control risk and detection risk. The response to an enquiry to corroborate information contained in the accounting records. The overall attitude, awareness and actions of directors and management regarding internal controls and their importance in the entity. The control environment encompasses the management style, and corporate culture and values shared by al employees. It provides the background against which the various other controls are operated. The balance sheet, profit and loss account (or other form of income statement), statements of cash flows and total recognised gains and losses, notes and other statements and explanatory material, all of which are identified in the auditors report as being the financial statements. An asset or liability exists at a given date. An asset or liability pertains to the entity at a given date.
Audit Firm, Auditors Audit Plan
Audit Programme
Audit Risk
Confirmation Control Environment
Financial Statements
Existence Rights and Obligations Occurrence
A transaction or event took place which pertains to the entity during the relevant period.
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Final Completeness Valuation Measurement Presentation and Disclosure There are no unrecorded assets, liabilities, transactions or events, or undisclosed items. An asset or liability is recorded at an appropriate carrying value. A transaction or event is recorded at the proper amount and revenue or expense is allocated to the proper period. An item is disclosed, classified and described in accordance with the applicable reporting framework (for example relevant legislation and applicable accounting standards). For example, applying these financial statement assertions to the figure for stocks include in an entitys financial statements gives the following: existence: the stocks existed at the balance sheet date; rights: the stocks pertained to the entity at the balance sheet date; completeness: there is not unrecorded stock; valuation: stocks are recorded at an appropriate carrying value; and presentation and disclosure: the stocks are disclosed, classified and described in accordance with the applicable reporting framework.
Going Concern Basis
Financial statements prepared under the presumption that the entity is carrying on business as a going concern are described as being prepared on the going concern basis. The susceptibility of an account balance or class of transactions to material misstatement, either individually or when aggregated with misstatements in other balances or classes, irrespective of related internal controls. An appraisal or monitoring activity established by management and the directors for the review of the accounting and internal control systems as a service to the entity. It functions by, amongst other things, examining, evaluating and reporting to management and the directors on the adequacy and effectiveness of components of the accounting and internal control systems. An expression of the relative significance or importance of a particular matter in the context of financial statements as a whole. A matter is material if its omission or misstatement would reasonably influence the decisions of an addressee of the auditors report. Materiality may also be considered in the context of any individual primary statement within the financial statements or of individual items included in them. Materiality is not capable of general mathematical definition as it has both qualitative and quantitative aspects. Developing a general strategy and a detailed approach for the expected nature, timing and extent of the audit.
Inherent Risk
Internal Audit
Materiality
Planning
130
Final Working papers The material auditors prepare or obtain, and retain in connection with the performance of the audit. Working papers may be in the form of data stored on paper, film, electronic media or other media. Working papers support, amongst other things, the statement in the auditors report as to the auditors compliance or otherwise with Auditing Standards to the extent that this is important in supporting their report. Working papers are a record of the planning and performance of the audit, the supervision and review of the audit work, and the audit evidence resulting from the audit work performed which the auditors consider necessary and on which they have relied to support their report
Statutory Audit
The compulsory audit of a Councils annual financial statements by External Auditors appointed by the Minister under Section 52 of the Local Government Act
131

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REPUBLIC OF ZAMBIA

Ministry of Local Government and Housing Local Government Audit Manual

Local Government Audit Manual

Final 3.11 3.12 INFORMATION TECHNOLOGY CONSIDERATIONS ...............................................25 PLANNING DOCUMENTS...........................................................................................26

Local Government Audit Manual

Final 5.12 5.13 AUDIT OBJECTIVE .....................................................................................................35 AUDIT STEPS ..............................................................................................................35

Local Government Audit Manual

PROFESSIONAL AND REGULATORY PRONOUNCEMENTS ................................63

Local Government Audit Manual

Local Government Audit Manual

Local Government Audit Manual

CHAPTER 23 CONCLUDING PROCEDURES....................................................................94

Local Government Audit Manual

Local Government Audit Manual

Local Government Audit Manual

Hon Sylvia T Masebo, MP MINISTER OF LOCAL GOVERNMENT AND HOUSING

Local Government Audit Manual

Local Government Audit Manual

PAF PLGO PS QoERs TA VfM ZICA ZMK

Local Government Audit Manual

CHAPTER 1 INTRODUCTION AND BACKGROUND INFORMATION

Local Government Audit Manual

Local Government Audit Manual

D e ve lo p E xp e cta tio n s & P e rfo rm A n a lytics

P e rfo rm In q u irie s, o b se rva tio n s & W a lk T h ro u g h s (a s n e ce ssa ry)

E va lu a te D e sig n E ffe ctive n e ss o f In te rn a l C o n tro ls

A sse ss A p p lica b ility o f In h e re n t R is k In d ica to rs

In te rn a l C o n tro l D e sig n e d E ffe ctive ly?

N O - "B " o r "C " P ro ce d u re s

Ye s Id e n tity a n d Te st G o v e rn a n ce a n d A ctivitie s - L e ve l K e y In te rn a l C o n tro ls

K e y C o n tro ls O p e ra tin g E ffe ctive ly?

"A " o r "B " P ro ce d u re s

Ta ilo re d S u b sta n tive P ro c e d u re s

Local Government Audit Manual

Local Government Audit Manual

Local Government Audit Manual

CHAPTER 3 AUDIT OF PLANNING

Local Government Audit Manual

Local Government Audit Manual

Local Government Audit Manual

Local Government Audit Manual

Local Government Audit Manual

INHERENT RISK ASSESSMENT

Local Government Audit Manual

Final 3.10 JOINT AUDIT ENGAGEMENTS

Local Government Audit Manual

Final 3.12 PLANNING DOCUMENTS

Local Government Audit Manual

PART II - AUDIT FIELD WORK

Local Government Audit Manual

CHAPTER 4 AUDIT FIELD WORK

COLLECTION OF AUDIT EVIDENCE

ANALYSIS OF AUDIT EVIDENCE

Local Government Audit Manual

Final 4.5 DOCUMENTATION OF AUDIT

Local Government Audit Manual

CHAPTER 5 AUDIT OF REVENUE

Local Government Audit Manual

Local Government Audit Manual

Local Government Audit Manual

Valuation: Gross Net

Local Government Audit Manual

Rights and Obligations

Cash in bank is held in accounts and not subject to restrictions.