Auditing Liabilities and Equity (Basic Procedures)

Basic Audit Training

Audit Objectives

To ascertain liabilities and equity exist. (Existence) To ascertain liabilities are owed by the Company and equity are at stated value as of the balance sheet date. (Cut-off) Accounts are fairly presented. (Presentation) Liabilities and equity are duly supported and liens are duly noted. (Completeness and Accuracy) Liabilities and equity are recorded at actual or accrued value. (Valuation)

Liability and Equity Accounts to Audit

Current liabilities

Accounts payable Accrued expenses Other liabilities Income taxes payable Loans Other liabilities

Noncurrent liabilities

Equity accounts

Capital stock Retained earnings Other equity accounts

Auditing Accounts Payable (AP)

Documents needed

Aged AP Listing Summary of subsequent payments made Confirmation of material balances Test of subsequent payments Cut-off testing of payables, vouchers Test of unrecorded liabilities Recomputation and analysis of:

Audit procedures

Movement of balances

Auditing Accrued Expenses

Documents needed

Aged AR listing Summary of collections Confirmation of selected material AR balances Test collection of receivables Test of sales invoices Recomputation and analysis of:

Audit procedures

Allowance provision Turn-over and days outstanding of receivables Movement of balances

Auditing Other Liabilities

Documents needed

Listing of inventories based on classification Inventory count summary and reconciliation Inventory count observation Test on receipts and costing of goods Test on releases Recomputation and analysis of:

Audit procedures

Allowance provision and net realizable value Turn-over and days outstanding of inventories Movement of balances

Auditing Income Taxes Payable

Documents needed

Listing of prepayments and other current assets Amortization schedules Recomputation and analysis of:

Audit procedures

Movement of balances Annualization of amortization

Auditing Loans

Documents needed

Listing of investments Summary of dividends/equity earnings (losses) received and FS of investees Test of documents Market value and impairment testing Recomputation and analysis of:

Audit procedures

Movement of balances

Auditing Other Liabilities

Documents needed

Lapsing schedule Schedule of additions and disposals Inspection PPE additions and documents for disposals Impairment testing Recomputation and analysis of:

Audit procedures

Movement of PPE and depreciation Annualization of depreciation

Auditing Capital Stock

Documents needed

Listing of prepayments and other current assets Amortization schedules Recomputation and analysis of:

Audit procedures

Movement of balances Annualization of amortization

Auditing Retained Earnings

Documents needed

Listing of prepayments and other current assets Amortization schedules Recomputation and analysis of:

Audit procedures

Movement of balances Annualization of amortization

Auditing Other Equity Accounts

Documents needed

Listing of prepayments and other current assets Amortization schedules Recomputation and analysis of:

Audit procedures

Movement of balances Annualization of amortization