Significance And Objectives Of Source Documents In Audit Investigation

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Abstract

The concept “source documents” is a familiar term with those involved in keeping accounting records or watch dogs of limited liability and public liability companies and organizations from time to item, most often on annual basis, the independent Auditors call to review the accounting records kept by their clients. This they do by studying and evaluating the internal control systems in the company. This approach makes it possible for lapses, discrepancies, deficiencies and bottlenecks to be discovered if any do exist.
However, most people do not really understand the role of the auditors in public practice. To the layman, it’s a matter of detecting for fraud, which is more or less a secondary object f audit.
This research has set out to review the role of the auditor in public practice, the statutory and regulatory frame work under which they operate and the procedures adopted in the course of their duties, to meet the standard required to them. This task has been carried out with a special reference to Orji Chukwu and co-chartered Accountants a relatively small firm of chartered accountants located at 57 chime Avenue new haven, Enugu
Chapter one of this work, takes a critical look at the background information relating to the concept of auditing and investigation procedures in auditing, while chapter two gives a detail tool of the concept of auditing and all other related issues under literature reviews
Chapter three, research methodologies, reviews the procedures used in carrying out the research, while chapter four gives details of data obtained during the research with brief comments on the facts that could be deduced there from.
Chapter five looks at the inferences drawing from the analysis of data obtained, while the 0last chapter summarizes the results of research, finding in more general items.

Chapter One

BACKGROUND INFORMAITON
1.1 INTRODUCTION
RELEVANCE OF INVESTIGATION
Every business entity, be it profitable or non profitable, have goals and objectives for which they were established example, most liability companies are established for profit optimization and charitable or non-profit organizations, example, government parastatates reestablished to subsidize costs to the governed.
However, its pertinent to note here that whether upon profitable or non profitable basis, its relevant that accounting records must be maintained Accounting is broadly defined as a process of recording analyzing and interpreting at business transactions in such a systematic and concise manners as to give full and detailed explanation to related parties who are interested in the financial statement. In every business organizations, it’s the duty of the chief accountant to keep records of all business transactions of the organization. However if thus records must be kept, it must follow norms principles, conventions and standards et out by various professional accounting bodies. In Nigeria, the Nigeria accounting standard board (NASB) is in charge of this duty.
Subject to the foregoing, section 357 of the company and allied matters decree,. Makes it mandatory for every limited liability company to appoint an Auditor to examine its accounts.
This now brings us to the question, who is an auditor? With reference to Walter N. Bigg, he sees an auditor as a person appointed by the directors (Shareholder authorize the directors to appoint) of a company to examine its books of account and stake whether it gives a true and fair view of the financial position of the entity and also see that there is compliance with statute and that accounting standard are strictly adhered to. In the light of the above, the auditor should be a professional and used in the accounting field, with high integrity profile and must be a member of a recognized professional body and must be licensed to practice. In Nigeria today, the institute of chartered accountants Nigeria takes care of this. If the auditor as a professional is a ware of the fact that his work is relied upon by related third parties, he owes it a duty to the reasonable care and skill in the discharge of his duty so as not to expose himself to liabilities associated with negligence out of misfeasance proceedings.
In the light of the above, for the auditor to accept assurances or to give in opinion, he must certify himself beyond all reasonable doubt that the presentation made to hi gives a true and fair view of the financial position of the entity as at the date of his audit.
In these regards, he has access to all the company books and has unreserved rights as to question any misadministration, and gather all such information that would assist him in his work. However, for the auditor to formally accept assurances, has basis of acceptance must be dependent on the availability of reliable source of documents and explanations produced by the entity in question. At diverse levels of investigation Associate source documents checks and test are applied and evidences shown must be very authentic and satisfying. For example where bank balances are investigated, for the auditor to accept the stated figures, the certifying evidences should be, bank statements, check stamps, cash books, authorization vouchers, etc and all such reconciliation that would enable him accept the presented bank balances as shown on the account. It is pertinent to note that the presentation and figures without satisfactory evidence, or source document is like a student graduating without a certificate and thus bring us to one of the objectives of this text.
The investigation process involves making independent confirmation, example circulation of debtors, creditors and other related third parties to the entity in question. Generally the process of audit investigation is limited by so many factors which includes: cost consideration, time factors, unavailability of data. Distance and prevailing socio-economic and political climate, in as much as thus factors are political climate, in as much as thus factors are highlighted an noted, the auditor must not fail to certify himself beyond all reasonably doubts. This should be done by disclosing all lapses and discrepancies and must not fail to give qualifications when need be. In all circumstances, he, the audit should try to avoid damages associated with negligence as number of cases related to auditors liability has been recorded some of the case includes: CAPRO industries Vickman (1989) see SCDH. Group VMC farlance (1972) see JEP Fasteners Vmarts Bloom and Co (1981) also see security pacific business credit V peat MARWICK MAL & CO (1992).

THE FIRM
This study is designed to examine the activities, responsibilities and legal framework under which the auditor in public proactive operates. This is with the appraisal of a relatively small firm of chartered accountants in Nigeria today, Orji Chukwu and co. with Head Office at 57 Chime Avenue New haven Enugu and other offices in Enugu state and Lagos.
Orji chukwu and Co is a relatively small firm of chartered accountants, founded in Nigeria in the year 1987 as a partnership between Orji Orji Chukwu L and Onyemelukwe C. The firm today has offices in about three states of the federation and efforts are made to erect more offices in other stated. In its early years, its main objectives, was centered on Financial management consultancy and audit and investigations, but today it has grown broth in size and scope it services rendered. It is interesting to now that the following range of services are now available at Orji Chukwu and co-chartered accountants.
a. Tax consultancy
b. Information technique Enlargement
c. Business advisory services.

STAFFING
In each state, the firm is headed by
a. Resident partner (a qualified accountant) and two assistants also qualified person
b. 4 senior audit staffs
c. 3 junior audit staff
d. Corpers
e. Industry trainees
f. Office assistants.
In the whole, the firm has about 32 staffs and efforts are onto recruit more employees to enable the firm meet with increasingly clientship.

1.3 STATEMENT OF THE PROBLEM
As has been mentioned earlier, there is a legal dimension to the auditors job. The duties of the auditors are outlines in section 360 (I) of the company and Allied Decree 1990). Any contravention of the requirement of this section of the decree attracts a penalty. Again the report of the auditor as an important document, not only, to the shareholders of a company, but also to related third parties. Cases have been recorded, where auditors have been convicted by courts of law for negligence resulting from misfeasance proceedings. Consequently, it is very important that an auditor should exercise due professional care in the discharge of his duties to minimize his exposure.
The problems now faced by the auditors in public practice, is how they can attain this standard required of them, and also the needs of other parties who may be interested in the financial statements they are auditing. This study aims at striking out the various source documents. Tests, and checks to be applied during the investigation on process. So as to guarantee the completeness of the audit investigation and the financial report three-on.

1.5 SOURCE DOCUMENTS AND INVESTIGATIONS RELATED TO CAPITAL RESERVES, DIRECTORS AND STATUTORY WORK OBJECTIVE OF THE AUDIT INVESTIGATION
The objectives is to form an opinion as to whether
1. The share capital has been properly classified and described in the account
2. The reserved have been properly described and only applied for the purposes permitted by the company’s articles, or companies Act.
3. Movements on reserves are correctly stated in accordance with the appropriate resolutions
4. Dividends paid and payable are correctly states in accordance with he appropriate resolutions
5. Director’s remuneration is correctly disclosed in the accounts, and is in accordance with the articles, Board and members resolutions, or any service agreements, that is, (PPIB).
6. The information required by companies act has been correctly recorded in the statutory books kept by the company for that purpose
7. Resolutions are in accordance with the articles and the accounts reflect the decisions.

SOURCE DOCUMENTS TO BE VERIFIED OR INVESTIGATED
a. Make a summary of authorized and issue share capital
b. Summarize the share holding
c. Directors shareholding
d. List of directors, secretaries and principal officers
e. Annual returns summarized
f. Extract from minutes, that is, directors meeting, AGM and other meetings
g. Movement on reserves and profit and loss account
h. Dividends proposed and paid, gross tax deducted
i. Directors emoluments
j. Preliminary expenses list.

1. CAPITAL
a. Prepare a schedule showing opening and closing position and movement in share capital
b. Vouch movement with minutes
c. Bring up to date, the history of share capital in the paramount life
d. Ensure that he authorized capital accord with he memorandum and articles of association or amendments where to (see registrars, registration of increase).

2. DIVIDENDS
a. Prepare statements of dividends paid and proposed showing payment lates
b. Agree to appropriate board, AGM, resolution
c. Ensue it is within statutory income guidelines limit
d. Non compliance or (b) or (c) should be noted as points on account
e. Check calculations, ensure that propsoed dividends are shown in accounts
f. Verily that withholding tax has been accounted for to appropriate revenue authorities.
g. Check total dividend paid in cash-book and posting to nominal ledger
DIRECTORS
a. Examine register of directors and prepare list of directors and their share and debenture holdings, showing the corresponding holding for previous year
b. Confirm new appointment and re-election of directors with board and members resolutions
c. Verify that director’s qualifying shares are held in accordance with articles of association of the company
d. Verify that the number of directors complied with the articles.
e. Verify that section of CAMD related to age limit of directors are complied with
f. Verify that returns of all changes in the appointment of directors and secretary have been made to the registrar of companies.
PRELIMINARY EXPENSES SHRE AND DEBENTURE ISSUE EXPENSES
a. Prepare a schedule reconciling opening and closing position of issuing share and debentures
i. preliminary expenses
ii. Commission paid in respects of shares, or debentures
iii. Discount issue of shares of debentures
b. Vouch with invoices etc. see that commission paid are in accordance with the terms of issue and section 54 of the companies Act 1968.
c. Vouch entries in cash book and normal ledger
ANNUAL RETURNS
a. Verify that a return made up of 42nd day after AGM has been filed with the registrar of companies
b. Inspect copy and filing receipts
c. Confirm accounting references date, and if it has changed, ensure that appropriate motive has been given to the registrar of companies
RESERVES
A. Prepare a schedule reconciling the opening and closing position for reserves
i. Share premium account
ii. Revaluation surplus reserve account
iii. Other reserves

B. Vouch movements during the year, and confirm with minutes.
1. Source(s) of any increase and applications of any decrease

C. Bring up to date the history of reserves in the permanent files
D. See that any restriction on the application of reserves are complied with by reference to section 57 of companies act of 1968, the guidelines of the PPIB the company: Articles, debenture trust deeds, etc.
TRANSFER OF SHARES
i. Check to Board resolutions
a. Ensure that share transfer forms have been witnessed
b. Checked that correct entry has been made ion the register of members
DEPOSIT FOR SHARES
a. Prepare detail schedule and vouch items there on
b. Check that the board has adopted them.

REGISTER OF MEMBERS
a. List members and shareholder where practicable, showing percentage holding
b. Agreed-issued capital with register of members registrar obtain certificate in a suitable form from the registrar.
c. Check that share certificates have been issued to all members

DIRECTORS REMUNERATION
A. Obtain, or prepare a schedule of directors remuneration under headings appropriate for inclusion ion the accounts distinguished between the emoluments paid by company and company’s subsidiary
B. Vouch emoluments paid by reference to
i. Company’s articles
ii Device agreement or other evidence as agreed
iv. Board members resolution
v. The productivity prices and income board guiding
C. Obtain signed copy of statement from each of the directors setting out the information on director’s emoluments.
BOARD AND MEMBERS MINUTES
a. Examine and make extract as necessary minutes of directors and numbers
b. Ensure AGM was held within statutory period
c. Note if decision had been implemented

1.5 SOURCE DOCUMENTS AND INVESTIGATION RELATED TO DEBENTURES, TAXATION, CREDITORS AND ACCRUED CAHRGES.
THE OBJECTIVE OF THE AUDIT INVESTIGATION
The objective is to form an opinion as to whether
i. Debentures, mortgages and long term loans are fairly stated and are properly described and classified as required by he companies Act.
ii. Disclosure has been made of these loans which are secured on the assets of the company
iii. Aggregate borrowings (including where appropriate, overdrafts and other short term loans) are not in excess of the maximum permitted according to the articles or terms of any loans trusted
iv. The company has complied with requirements any sinking fund established under the terms of loan
v. The terms of conversion of any convertible loan stock have been complied with
vi. The register of mortgage and charges correctly records the informaiton required under the companies act.
vii. Interest has been paid in accordance with the terms of loans agreements
viii. The balance sheet fairly states and properly described the company’s aggregate liability for tax, or the extent of the tax recoverable at the accounting date.
ix. The liability for deferred taxation is correctly stated
x. The P and L account fairly states the charges for taxation on profits for the year, including any adjustment required to the charge for taxation in prior years and properly reflects tax attributable to extra ordinary items
xi. All material inability existing as at balance sheet date are all reflected in the accounts
xii. The liabilities has been described and disclosed on statute basis
xiii. Adequate disclosure has been made of any loans or other short term liabilities, which are secured on the assets of the company.

SOURCE DOCUMENTS TO BE VERIFIED OR INVESTIGATED BORROWING
1a. Reconcile the opening and closing balance of debenture term loans
b Vouch redemption repayment during the year and new loans
2 Note the volume of security given
3 Verify that borrowings per article have not been exceeded, other wise note as points , on the accounts
4 Check that register of mortgages and charges are written up to date
5 Ensure that all borrowings and charges are subject of an appropriate resolution
6 Check that he terms of the debentures deed/loan are complied with
7 Obtain confirmation, where appropriate from leaders of the amounts outstanding and security held

INTEREST
1a Prepare a schedule of interest payable correlate opening liability, payment and closing liability
b. Vouch amount paid, check calculations and treatment of interest in the accounts
c. Check deduction of income tax and its payments to appropriate tax authorities
TAXATION – CURRENT YEAR
1. Prepare provisional computations for
i. Income tax, including capital allowance computations ensure that analysis of expenditures accounts, generally requested by the revenue are in the file
ii. Capital gain tax (statement) if any
iii. Vouch payment made during the year
iv. Ensure that where expenditure on fixed assets exceeds N2000 in the year, an acceptance certificates has been obtained from the inspectorate division of the federal ministry of industries in compliance with the industrial inspectorate act, 1970.

TAXATION – PREVIOUS YEAR
a. Obtain a copy of previous year tax computations
b. Compare amounts provided in respect of previous years with the computation sent to FBIR and adjust for under and over provisions
c. Determine the extent of other tax liabilities
d. Verily that the taxation effect of any extra-ordinary or prior year item has been correctly isolated, and has been dealt with as part of extra ordinary, or prior year items being separately disclosed

DEFERRED TAXATION ONREVALUATION OF ASSETS
1. Prepare a reconciliation of the opening and closing provision for tax equalization, taking accounts of the differences between
a. Accounts and tax, written down value of assets ranking for capital allowance
b. Cost and value arising from revaluation of any assets, example property.
c. Disallowable provisions and accruals in the accounts, allowable to different tax years.

CREDITORS AND ACCRUED CHARGES.
1. Prepare a summary of creditors and accrued charges, showing corresponding amounts in the previous year
2. Prepare supporting schedules where necessary, and cross reference to summary
3. Compare amounts in current year with the previous year and enter into material variations or omission
4. Note as point on accounts of provisional appear to be material excessive or inadequate for their purpose, or have been utilized for other purposes
5. Note whether particular liabilities are secures

TRADE AND SUNDRY CREDITORS
With regards to trade and sundry creditors.
a. Trace balances to the ledger
b. Agree with control accounts
c. Reconcile balances with suppliers statements
d. Check payments there on made after year and to cash book / ledger of subsequent period
e. Select block of 25% of balances and analysis outstanding balances, as per supplier invoices and in particular enquire into no account payment, payment into recent bill
f. Select certain number of invoices received a few days before year end and those received a few days after year end date, carry out cut off text, ensure that liabilities are correctly recorded in the appropriate period.

ACCRUALS
Prepare or obtain a schedule of accruals at the year end
a. Check the evidence supporting the figures
b. Ensure all accruals are includes by examination of accruals in which they normally occur
c. Enquire whether there are any actions pending against the company for which provision should be made in the accounts
d. Consider whether confirmation should be sought from the company’s solicitors

CIRCULARISATION
Select balances at the year end and
a. Prepare letters, and supervise reply
b. Send second request after three months to those from whom no reply has been received
c. Reconcile replies to balances on control schedule
d. Prepare summary of circulerization and conclusion, there on

1.6 HP CREDITORS, SHORT TERM LOANS
1. Obtain or prepare a schedule reconciling opening and closing position and stating the basis of accounting for interest
a. Examine new agreements, and vouch entries in ledger accounts
b. Vouch repayments during the year and note those falling into arrears
c. Obtain certificates for balances outstanding of the year end.
d. Ensure correct interest accrual at the year end.

BILLS PAYABLE
1. Prepare a schedule of bills payable at the year and
a. Ensure that correct accrual has been made for interest, and check payments in the year
b. Obtain certificate confirming bills outstanding from the banks
c. Inspects bills paid since the year end, and check entries in cash book.

DIRECTORS CURRENT ACCOUNT
a. Prepare schedule showing movement in the year
b. Vouch transaction with underlying documents/authorities
c. Obtain confirmation of balance
CONTINGENT LIABILITIES
a. Prepare a schedule of contingencies correlate to the previous year. Obtain confirmation from outside agencies where necessary summarize contingent liabilities at the year end, indicating their nature.
Prepare notes for inclusion in the accounts compare with previous year.

1.7 SOURCE DOCUMENTS AND INVESTIGATIONS RELATED TO FIXED ASSETS
THE OBJECTIVE OF THE AUDIT INVESTIGATION
Our objective, is to form an opinion as to whether
i. The assets are properly stated in form required by the companies act.
ii. The assets are still in existence and that the company has good title to them
iii. The balance of accumulated depreciation of the accounting date and the charge for depreciation for the year, are reasonable having regard to the cost of each assets, its expelled useful life and residual values, and that depreciation has been provide in accordance with the requirements of IASU
iv. The additions for the year are proper capital items and that no material capital items have been charged to revenue
v. Disposal have been correctly eliminated from the accounts
vi. The company’s committed and authorizes capital expenditure, are correctly stated in the notes to the accounts
vii. Acceptance certificate has been obtained in respect of qualifying additions to assets

SOURCE DOCUMENTS TO BE INVESTIGATED
i. Summary of fixed asset, cost valuation, depreciation and net book
value.
ii Additions during the year.
iii Disposal and transfers during the year.
Iv Goodwill patents, trade marks
V Fixed asset at valuation.
Vi Asset being acquired under hire purchase agreement.
Vii Commitments for capital expenditure.
Viii Depreciation summary of charge in the accounts.
Ix Summary of profits/losses on disposal of fixed assets.

1.1 ASSETS SUMMARY.
a. Prepare a summary of fixed assets, reconciling lost and depreciation at the beginning and end of the year.
b. Note any assets used as security for liability.

2. ADDITIONS
a. Obtain or prepare a list of additions to fixed assets during the year, showing the date purchase and also broken into various assets categories, detailed on the summary schedule.
b. Vouch the items or reasonable percentage there of I with purchase invoice agreement / construction contract / value certificate /title, deeds, etc.
c. In respect of percentage of the above items, vouch further with capital authority and board minutes.
d. If company erects or manufactures its own plants, ensure that capitalization of overheads is on an reasonable basis, and no profit is included-update permanent file and ensure basis is consistent.
e. Review the list of repairs and renewal expenses for items of a capital nature to additions for the year.
f. If total additions exceed N20,000, ascertain whether acceptance certificate has been obtained.
3. DISPOSAL
a. Prepare a detailed statement of assets sold scraped /absolute
b. Vouch sales proceeds and complete profit or loss on sales
c. Check the authorization for disposal
d. Ensure they are appropriately dealt within the accounts and deleted from the assets register and update payment records.
4. ASSET REGISTER
a. Ascertain wither the fixed assets register is kept up to date and ensure that it contains relevant date.
b. Ensure that all additions and disposal during the year are correctly recorded.

5. EXISTENCE AT YEAR END
a. Examine title deeds or certificate of occupancy for freehold and lease hold land and buildings, or obtain certificates from bank, or other third parties Ascertain whether deeds held by third parties are for safe custody or to secure liabilities of the company or for some other persons.
b. Examine registration receipts, insurance, certificates and licenses of motor vehicles.
c. Reconcile assets register, if and with fixed assets schedules, and carry out test physical inspection of selected items

 

6. ASSET REVALUATION
a. Obtain or prepare schedule of assets revalued indicating separately, the revaluation surplus on each assets.
b. Examine Board resolution adopting the resolution
c. Examiner expert report on the bias of the revaluation

7. DEPRECIATION
a. Enquire of there has been any change in the company’s depreciation policy since the last accounts, consider of reasonable, and up date permanent file.
b. Prepare a statement of the depreciation charge for the year by fixed assets category and test as follows
i. Compare rates with those laid down, and enquire to any variations.
ii. Test calculation; and compare totals with calculation and enquire into any difference adjust accounts of material
c. Ensure that leases, including additions thereto, are written up over the unexposed period of the less
d. Test check individual items of depreciation to assess register where applicable.
e. Ascertain that only additions brought into use are depreciated
f. Ensure that additions are depreciated on a consistent basis example by months, six months a ravage, or on a similar basis.
g. Any charge in the company’s rates must be disclosed by way of notes in the accounts.

CAPITAL COMMITMENT
a. Obtain, or prepare a schedule of future capital expenditure, which has been committed at the balance sheet date, but not provided for in the account, distinguishing between.
i. Amount contracted for
ii. Authorized by the directors but not contracted for.
b. Vouch with orders placed, quotation accepted, and board minutes.
GENERAL INVESTIGATIONS
a. Consider in case, trading losses sustained by the company. Some provisions should be made to write down the value of fixed assets to break up value
NB: This point need only be considered where the company is in danger of becoming insolvent
b. Where a revaluation of fixed assets has taken during the year, consideration must be given to the taxation effect of this cross reference to section C.
c. Review insurance vale, and coverage, and consider if adequate.

1.8 SOURCE DOCUMENTS AND INVESTIGATIONS RELATED TO CURRENT ASSETS.
OBJECTIVES OF THE AUDIT INVESTIGATION
i. Investment as shown, represent bonafide assets to which the company has good title
ii. The investments are stated as fair value and on a basis consistent with previous years
iii. Disposal of investment have been properly recorded in the books on a basis consistent with previous years.
iv. The income from investments has been properly accounted for
v. The information required by the companies Act concerning the valuation of listed, and unlisted investments is correctly stated together with the other details required for investments which exceed certain size
vi. The stated stocks and work in progress belonging to the company have been included.
vii. All stocks, and work in progress belonging to the company have been included
viii. Each item, or group of similar items have been properly valued at the lower of its cost and not realizable value, and acceptable basis in conformity with IAS 2, and consistent with previous years.
ix. Adequate provision has been made for expected losses on long term contracts, and for defective and obsolete items of stocks.
x. All stocks held free from lien, or pledge, or whether all, or part is charged as security for liabilities.
xi. The amounts shown represent genuine debts due to the company, or the prepayment of expenses and are correctly classified
xii. Adequate provision has been made for all amounts receivable, whose collectable is in doubt
xiii. The bank balances and cash in hand are correctly stated in the accounts
xiv. The amount shown as a bank overdraft correctly states the company’s indebtedness to the bank at the balance sheet date
xv. Proper disclosure is made of overdrafts that are secured

INVESTMENT HOLDINGS (STOCK AND SHARES)
1. Prepare a summary of opening and closing holdings:
a. Vouch all purchases, sales and bonus right issues with support documents
2. Ensure that all major additions / disposal have been authorized by the board
3. Examine share certificates, or obtain confirmation from third parties regarding:
a. Name in which registered
b. Number of shares
c. Unit value
4. Ensure that the basis and allowing at the amount of the investment has been disclosed cost valuations / loss, etc
5. Obtain market value for quoted securities and directors valuation for unquote investments
6. Compute the gains / losses on sales, estimate tax liability on investments realized during the year and consider whether tax should be provided on unrealized gains and investments which have been revalued
DEPOSITS
1. Reconcile opening and closing positions and obtain certificates at the year end
2. Obtain passbook, or statement for the year and trace all amounts deposited and withdraw to cash book ensuring that the dates correspond
3. Where interest is added to the deposit see that the appropriate
INCOME
a. Vouch dividends received with dividends warrants counterfoils, and see that the tax is properly dealt with in the account
b. Verify that all income to which the company is entitled has been received or accounted for.

STOCK SUMMARY
a. Obtain or prepare a summary of stocks and work on progress, subdivided into major categories, appropriate to the business as disclosed in the accounts and showing corresponding amounts for the previous years. Prepare supporting schedule as necessary, and cross-reference to summary. Compare summary of stocks and supporting schedule with previous year, note and enquire into any material differences in the amounts for corresponding items, or items omitted and no explanations therefore.

SROCK TAKING-PRE-ATTENDANCE
Ensure that adequate stock taking instructions are issued and obtain copy of written instructions for note verbal instructions.
Verify that stock taking instrument include the noting of old, obsolete and damaged stock.

ATTENDANCE AT STOCK TAKING
Attend physical stock taking where practicable, to ensure that company’s stock taking procedure are being followed unless the engagement partner considers that stock in trade and work in progress are not material.
Ensure that all stock belonging to third parties are clearly marked and included from count.
Note last dispatch note and goods received, note numbers for cut-off tests complete stock attendance report.

WORK IN PROGRESS
Work in progress and finished goods-check items
a. With costing records, or calculations noting costs of material labour, and overhead recovery rates used
b. By comparison with previous year for similar items
c. By ascertaining that overhead recovery rates are consistent with earlier years and in line with circumstances reviling current years
d. If finished goods are valued at selling price less deductions for selling and distribution cost, check selling price with sales invoices and ensure deductions is such that no element of profit remains in the stock so valued
e. Complete “Cut off” tests for purchases in the case of raw materials, select goods recurred, notes issued during last few days of the period and the first few days of the new period and see that have been dealt with in the correct period, as regards purchases and stock. Check the stock records of available.
f. Complete cut off test for sales. In the case of finished goods, select items dispatched on the last day of the period and the first of the period and see that they are within the correct period, as regards sales, and stock check the stock records of available.

OBSOLESCENCE
Examine stock records generally and mark items which appear to be slow moving, or obsolete and verify that adequate provisions has been made.
c. Check additions and calculations that is, test additions on stock sheets, Naira column only.
d. Check additions and summaries and agree total with balance sheet
e. Consider stock levels in relation to purchases and sales and compare these levels and the rate of overall stock turnover against the previous three to five years.
f. Compare gross profit percentage with that of previous years, and obtain explorations, for materials differences
g. Obtain certificate signed by chairman, or managing director in a form approved by the firm.

DEBTORS AND PREPAYMENTS
For each material item, prepare a special programme of work designed to verify its completeness and accuracy, working papers should indicate the source verification and give such other information that will explain the nature of the item and the conclusion drawn
a. Prepare a summary of debtors and prepayments showing corresponding amount in the previous year
b. Prepare supporting schedules where necessary and cross reference to summary
c. Compare amount in current year with the previous year and enquire into material variations, or omission.
d. Obtain or prepare a list of debtors (other than sales ledger balances) and payments in advance, vouch material or unusual items with invoices, statement has been made since the year.
e. Compare ration of debtors/sales with that of the preceding year and obtain explanation for material difference

TRADE DEBTORS
a. Obtain list of sales ledger balances and check with ledger accounts check additions of list of agree total with the control account.
b. Investigate all credit balances appearing in debtors ledger
c. Mark list of balances for amounts received after year end date , scrutinize applaud account, note dates from which debts appear to the outstanding and ensure adequate provision is made for doubtful debts
d. Confirm that the client regularly reconcile cash received with the ledger. Make holes where round sum payments on accounts are being received and account appease to be in arrears
e. Test additions of number of ledger accounts
f. Enquire into any unusual fluctuation in the level of discounts sales return of bad debts

OTHER DEBTORS
a. Examine cashbooks, subsequent to year and to ascertain if any substantial amount received after date for non-routine, item example, scrap. Sales, insurance claims disposal of fixed assets, etc should be brought back into year under reviews.
b. Vouch as necessary, prepayment an other debtors balance
c. Directors account

DIRECTORS ACCOUNT
Prepare a statement showing the amount of directors loan and current during the year, Enquire into the circumstances of nay loans to directors

STAFF LOANS AND ADVANCES
a. Obtain or prepare a list of staff loans and advances
i. Check that the loans granted during the year are duly authorized
ii. Ensure that deductions are made in accordance with ban agreements
iii. Obtain confirmation of balance

DEPOSITS
Obtain or prepare a schedule of customers deposit
i. Enquire into the purpose
ii. Vouch receipts into cash book and ensure proper classification in the accounts
CIRCULARIZATION
Select some balances at the year end and
1. Prepare letters and supervise mailing
2. Send second request after three weeks to those from whom no reply has been received
3. Reconcile replied to balances on control schedule
4. Consider whether provision should be made for disputed items
5. Prepare summary of circulars and circularize related parties.

LEGAL COMPLIANCE
1. Verify whether the relevant guidelines of the production prices and income board guidelines have been complied with
2. Which audit and for accounting standards are relevant to this section and complains there with
3. Any limitations must be quantified and fully explained as points or accounts
4. Seniors to initial for satisfactory clearance of each review point
5. Section clearance by manager

BANK BALANCES
1. Prepare summary of bank, and cash balance at the year, obtain direct confirmation of bank balances using standard letter
2. Obtain or prepare bank reconciliation statement, particularly for the last month of the year
3. Check that all outstanding lodgments at year end have been decreed to bank statement after date note if there is any delay between date of lodgment and the date decreed
4. Check that all unperfected cheques have been cleared after date, or note details of any material items still unpaid at date of audit.
5. Examine bank statements for dishonoured lodgment in the week following year end
6. Examine cash book for days preceding and succeeding year end and verily that all cheques drawn were for normal requirements of the business. Note all cheques drawn to replenish cash funds, transfers between bank accounts and group companies and verify they haven been properly dealt with in both set of books
7. In case of bank overdraft, verify whether the overdraft is secured by a charge on any of the company assets and if so, note particulars on working papers.

CASH BALANCES
i. Count all cash balance simultaneously, with cash records to any of the account. Examine cheque stubs tonsure that all cheques drawn for cash up to date of count are duly recorded and taken into consideration
ii. Ensure that no law interim of the funds, such as unclaimed are included in cash and that all cheques from employer and payable to company are dated. Note any undated cheques which appear to have been held for all unreasonable time.
iii. Bring to attention of responsible officials of company any loss for cash drawn by employees. Note any loss which are undated or which appear to have outstanding of an unreasonable time.
iv. If cash is not counted at year-end obtain certificate for balance.

1.9 SOURCE DOCUMENT AND INVESTIGATIONS RELATED TO GROUP AND ASSOCIATE COMPANIES
THE OBJECTIVE OF THE AUDIT INVESTIGATION
The objective is to form an opinion as to whether
i. The investment in subsidiary companies is worth not less than book value, the cost of chares, being shown separately from loans to subsidiaries.
ii. Amount due to subsidiaries are correctly identified and stated
iii. If amounts due to company subsidiaries correctly identified and
iv. The aggregate amount of the company’s indebtedness to those companies of which is a subsidiary, or fellow subsidiary and the aggregate indebtedness from these companies are fairly stated and that shares in fellow subsidiaries and the amounts owning in the form of debentures are shown separately
v. The name of each subsidiary and associated company the country in which it is incorporated or registers as appropriate and hate description and proportion of the shares held are correctly stated in the noes to the account.

GROUP COMPANIES
1. Prepare schedules of shares held in subsidiary companies or fellow subsidiaries and their lost or book value, reconciling opening and nosing position vouch movements during the year, inspect share certificates.
2. Prepare summary and note method of agreement of inter-group company balances. See that balance are confirmed by letter where possible
3. Scrutinize accounts and vouch any unusual transaction
4. Check all transactions involving the transfer funds in holding/subsidiary companies books and verify that the dates correspond especially at the year end

ASSOCIATE COMPANY
a. Agree with partner and client which litany investments should be accounted for as associated companies
b. Prepare schedule setting out particulars of associated companies and reconciling opening and closing position. Vouch movements during the year inspect share certificates
c. Prepare summary of amounts due to /from associated companies. Obtain confirmation of balances at year end.
d. Scrutinize current accounts and vouch an unusual transactions
e. Note large transactions involving the transfer of funds and check authority
f. Consider whether, in view of losses subsidiaries stained by particular subsidiaries/associate companies
Also some provision should be made in respect of
a. The book value of investment
b. Amounts due on loan or current accounts

1.9.1 SOURCE DOCUMENTS AND INVESTIGATIONS, RELATED
To profit and loss account
The objective of the audit investigation is to form opinion as to whether
h. The profits and loss account fairly states the results for the period and has been prepared on acceptable prudent basis consistent with previous years in compliance with the companies act
i. The accruals concept has been properly applied and that except for material items relating to prior year, reported revenue, costs and expenses are properly attributable to the period under reviewer and
ii. Unusual, prior period items and changes in accounting policy have been presented in accordance will LAS 8

TRADING TRENDS
a. Examine the tracing and profit and less account generally
i. Gross profit percentage
ii. Items of incomes
iii. Items of expenditure

b. Compare monthly sales, particularly, the last months with each other and with the corresponding months in the preceding year and obtain explanation for any unusual fluctuations
c. See that figures for income and expenses appear reasonable in the context of the business as or ciliate

INCOME AND EXPENSES ANALYSIS
a. Obtain or prepare a schedule explaining source and composition of items which are required to be disclosed under the requirements of the companies act or IAS’o
b. Other explanatory schedules as appropriate.
c. Scrutinize expenses accounts generally and vouch as appropriate, major items and ensure that no material items of a capital nature have been written off as expenses

AUDITORS APPOINTMENT AND FEE
a. Ensure that the provisions in the accounts is adequate to meet audit cost
b. Ensure that he agenda for next AGM includes resolutions to reappoint the auditors and to confirm or enable the directors to fix the auditor remunerations

INSURANCE
a. Ascertain whether the client carries out a periodic review to ensure that there is adequate insurance cover over significant areas example,(major fixed Assets, stocks and loss of profits employed and public liability) taking into account current replacement cost.
b. Update current cover and if a the client appears to be substantially under insured
c. Consider current cover and if the client appears to be substantially under insured

 

UNUSUALL AND PRIOR PERIOD ITEMS
Examine all unusual and prior period items and make details notes of material

ACCOUNTING POLICIES
a. Examine the working of the accounting policy note to ensure that its the same with previous year
b. Accounting treatment is in conformity with the note.

1.9.2 SCOPE AND LIMITATION
This project covers the area of auditing in public practice and the necessary pre-requisite to attain an effective audit. As is usual with most other projects, this research into the necessary source documents that would guarantee the completeness of an audit assignment has its own share of constraints and limitations which range from financial constraints, time factor, distance factor, cost and inadequacy of available data. However, this constraints were far outweighed by the importance and benefits derivable from a successful execution of the research.

1.9.3 DEFINITION OF TERMS
a. Audit – An examination into the financial statement by an auditor
b. Acts – This refers to the company Act 1968
c. Annual returns – returns accruing to the company at the end of a fiscal year which has to be filled with the commission
d. (AMI): this refers to company and allied matters decree 1990
e. Circularization: Passing and retrieving information from related third parties
f. Current assets – assets that are of liquid in nature
g. Dividend – an amount disbursed to members of a company out of the company’s yearly earnings
h. Disposal – The act of selling of assets by realization
i. Fixed Assets – Assets used by a company n the production process that are not convertible in nature example building plant machine
j. Group companies account – a company consisting of holding, subsidiary and associate produces a group account
k. Minutes – factors of facts highlighted in a companies meetings
l. Management letter – A letter from the auditor to the management of a company reporting one matters arising out of the audit assignment
m. Reserves – an amount set out of the company’s profit to take care of some problem that may spring out in future, example sinking fund reserve
n. Stock taking- an exercise taken to ensure that an adequate remuneration is given to stock at the end of a trading period
o. W/P. “Short for work in progress” an asset that is gradually used up to attain more complex asset
p. Depreciation – an amount written of on the historical and conventional cost of assets, so as to Carter for wears and fears arising in the process
q. Remuneration – a reward to the company’s employee
r. Independence – the auditors rights of liberty to the company’s books of account and unreserved right as to question any malady-ministration without biased mind and conflict of interred.
s. Internal control: all systems of check’s established by a firm to safeguard its assets and promote efficiency
t. Balance sheet: A statement showing the financial position of a company at a particular period
u. Profit and loss account – a run down of a company’s income and expenditure in a trading period
v. Appropriation account: a statement showing how the company’s net product would be apportioned to take care of dividend, reserved. Retained earnings, etc.

Table of Contents

Title page
ii Approval page
iii Dedication
iv Acknowledgement
v Abstract
vi Table of contents

CHAPTER ONE:
1.0 BACKGROUND INFORMATION
1.1 Introduction
1.2 The firm
1.3 Statement of the problems
1.4 Source document and investigation related to capital, reserves, directors and statutory work
1.5 Source document and investigations related to debenture, taxation, creditors and accrued charges.
1.6 Source document and investigations related to Hp creditors and short term loans
1.7 Source documents and investigations related to fixed asset
1.8 Source document and investigation related to current asset
1.9 Source document and investigation related to group and associate companies
1.9.1 Source document and investigation related to profit and loss or income expenditure
1.9.2 Scope and limitations
1.9.3 Definition of terms

CHAPTER TWO:
2.0 LITERATURE REVIEW
2.1. Relationship between auditing and source document
2.2. Legal framework of auditing
2.3. Regulatory framework of auditing

CHAPTER THREE:
3.0 RESEARCH METHODOLOGY
3.1 Sources of data
3.2 Determination of sample size
3.3 Description of the instrument of data collection
3.4 Method of data analysis

CHAPTER FOUR:
4.0 PRESENTATION AND ANALYSIS OF DATA
4.1 Responses to questionnaires

CHAPTER FIVE:
5.0 FINDINGS, RECOMMENDATION AND CONCLUSION
5.1 Findings
5.2 Recommendations
5.3 Conclusions
Bibliography
Appendix