Study unit 16.7 Flashcards
What is the procedures with regards to occurrence of transactions that happened during the year of long-term liabilities
MOI - requirements
Minutes directors’ loan - approved
Loan agreement - detail loan
Bank statement - deposit
What is the procedures with regards to accuracy of transactions that happened during the year of long-term liabilities
Allocation capital and interest
Short-term portion
Direct confirmation - outstanding balance
What is the procedures with regards to completeness of transactions that happened during the year of long-term liabilities
Minutes of management meetings - unrecorded loans
Source of finance capital expenditure
Reoccuring payments - loans
Management representation letter
What is the procedures with regards to cut-off of transactions that happened during the year of long-term liabilities
Recorded correct period - supporting documents
What is the general audit procedures with regards to leases
Obtain a signed management representation letter that specifically deals with the existence, rights and obligations, completeness and accuracy, valuation and allocation of the lease liability
Obtain a schedule showing all lease liabilities of the client
*reperform casts of schedule
*agree the total closing balance of schedule to the balance in the general ledger and the financial statements
Agree the opening balance of lease liabilities with the audited financial statements/working papers of the prior year
What is the procedures with regards to occurrence of new leases
For a sample of leases entered into during the current year, obtain the lease agreement and inspect the lease agreement for
*name lessor and lessee
*lease period and interest rate
*amount of lease payments
*signature of all parties
Inspect the minutes of meeting of the directors/management where the authorisation for the lease obligation was given
Inspect the MOI of the entity to determine if there was complied with the terms and conditions
What is the procedures with regards to accuracy of all leases
Reperform the PV calculation of lease rentals as well as PV calculation of expected payments at end of the lease agreement and agree with lease liability of client at year-end
Recalculation the finance portion of the lease rentals for the year and agree to finance expense in general ledger
Enquire from management the discount rates used to calculate the PV of lease rentals and
*inspect lease agreement if implicitly stated in agreement, to agree with rate used
*if incremental borrowing rate is used, evaluate the reasonableness thereof
What is the procedures with regards to the calculation of leases
New leases
*lease agreements - requirements IFRS 16 met
All leases
*recalculate short term portion of lease liabilities - agree F/S
What is the procedures with regards to the completeness of leases
Compare the schedule of leases for the current year with the schedule of the previous year and follow up on any omissions in current year
For leases of prior year not on the current year’s schedule, follow up if it has been paid in full during the year through inspect of bank statements
Obtain the general ledger accounts where operating leases have been recognised and through inspection of the agreements and enquiry, determine if any operating lease has to be capitalized
Inspect the minutes of meeting for directors and management for authorisation of any new leases during the current year
Enquire from management to determine the source of financing for the purchase of material assets
Select a sample of lease agreements from the file and trace to lease schedule to ensure they are included
Inspect bank statements for instalments paid and trace to lease schedule to ensure it is included
What is the procedures with regards to classification of leases
For a sample of leases entered into during the year, obtain the lease agreement, inspect the lease agreement to determine whether the requirements in terms of IFRS 16 were met
*there is an identifiable asset that is physically distinct
*the client has control over the asset - obtain substantially all of the economic benefits and has the right to direct the use of the asset
Recalculate the short-term portion of the lease liability and agree to the amount shown as current liabilities in the statement of financial position to determine if it is correctly classified
What is the procedures with regards to the existence of contingent liabilities and provisions
Evaluate the procedures performed by the company for identifying provisions and contingent liabilities
Inspect supporting documentation to determine if it complies with IAS 37
Inspect minutes of directors’ or managements’ meetings to determine if the provision or contingent liability was authorised
Obtain advice from legal council or expert if necessary
What is the procedures with regards to the existence of provisions
Evaluate if there is a legal or constructive current obligation that exists due to past events
Evaluate the probability that there will be an outflow of resources to settle the obligation
Evaluate the basis on which the amount of provision was determined, to decide if a reliable estimate of the amount can be made
Evaluate if the obligation exists independently from entity’s future actions
What is the procedures with regards to the existence of contingent liabilities
Confirm whether there is a possible obligation that will only be confirmed by the occurrence or non-occurrence of uncertain future events which is not under control of the entity
Evaluate if it is a present obligation that cannot be reliable measured or the probability of outflow of economic benefits is low
What is the procedures of auditing the opening balance of the share capital
Inspect previous years working papers and previous years signed financial statements to verify that the opening balance equals the previous year closing balance
What is the procedures with regards to occurrence of the issue of ordinary shares
Inspect the MOI and shareholder resolutions
*for any conditions with which the issue must comply
*to establish that the company has the necessary authorised share capital to make the issue
In the case of insufficient authorised shares, inspect minutes of directors meeting for the resolution to amend the MOI to increase authorised shares. If not allowed, inspect shareholders minutes of meeting for special resolution to amend MOI
Inspect minutes of directors meetings to confirm that
*resolution to issue shares was approved
*issue price of shares was for an adequate consideration determined by board
For private company, inspect minutes of shareholder meetings for communication with shareholders that they have been offered shares, within a reasonable time, to subscribe for a % of shares equal to their existing voting rights
If shares were issued to director inspect minutes of shareholder meetings for a special resolution approving the issue
Inspect share register and agree details to share capital account in the GL/SOFP to verify that additions and changes agree to minutes
Inspect the bank statements and cash receipt journal to verify amount received by company
