1. finance
2. accounting and auditing

Audit Checklist
Index
Exercise 1
- Identification of Checklist
Page 14
Sample 1
- Transpose & Sorting
Page 15
Sample 2
- Review Comments
Page 20
Sample 3
- Responding to Audit Framework
Page 22
(Controls & Audit Evidence)
Sample 4A
- Compliance Testing
Page 25
Sample 4B
- Substantive Testing
Page 27
Solution
- Identification of Checklist
Page 29
Annexures
a. Accounting Standard Checklist
b. CARO Checklist
Page 31
Page 79
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Rakesh Agarwal
Audit Checklist
Exercise 1 - Identification of Checklist
Type
General
Areas
Staffing Level
Timing
Standard/ Creati Updat Execu Review Interim Proactive Final
Customize on
e
tion
1 Auditing Standard Checklist
2 CARO Checklist
3 Accounting Standard Checklist
Standard +
None
1
1
2
2
3
3
1
1
Y
Y
Y
Y
1
2
4
2
Y
Y
1
2
4
2
4 Company's Act Checklist
5 Schedule VI
5 Corporate Governance Checklist
6 Firms Internal Protocol Checklist
Specific
Areas
1 Share-Capital
2 Reserves and Surplus
3 Borrowings
4 Creditors
5 Outstanding Liabilities
6 Gratuity & Leave Provision
7 Taxation
8 Contingent Liabilities
9 Fixed Assets
10 Investments
11 Inventories
12 Sundry Debtors
13 Current Assets
14 Profit and Loss Account
15 Profit and Loss Analytical Review
16 Specific Cycle – Purchase
17 Specific Cycle – Sale
18 Specific Cycle – Inventory
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Y
Y
Question for
Participants
1 Identify Checklist to be Responded as either Standard or Customize
2 Identify Level of Staffing to be Deployed (1 Partner, 2, Manger, 3 Qualified, 4 Article) for Creation, Update
and Review
3 Identify Timing for its Execution (Interim, Proactive, Final)
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Rakesh Agarwal
Audit Checklist
SAMPLE 1
Transpose And Sorting - Section Inventory
Level of Effort – Delegated to an Experienced Articled Trainee
Sources – Material Collected from A, B, ICAI, CD, etc.
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Rakesh Agarwal
Audit Checklist
Audit Steps for Practices Followed in the Past
1. Check Balances in Stock Register (audit program for validation stock register separately
addressed)
2. Check Balances in physical stock take sheet (program from validating physical stock
verification sheet separately addressed)
3. Check approval of shortages/excesses in inventories
4. Check Valuation of inventories --Cost or Market Value whichever is lower
a. Components of includes;
i. Purchase Price
ii. Taxes not refundable
iii. Freight inward
iv. Cost of storage before putting the inventory at its intended location for its
sale or use
b. Components of excludes;
i. Modvat
ii. Cash discount
iii. Discretionary discounts
iv. General corporate administration expenses
v. Selling expenses
5. Check Calculation
6. Trace it to Balance Sheet and P & L
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Rakesh Agarwal
Audit Checklist
From Accounting Standard Checklist
QUESTIONNAIRE FOR ASCERTAINING COMPLIANCE OF AS–2
1)
(a)
(b)
(a)
Is the inventory valued at lower of cost and net realisable value?
Is the disclosure made to that effect in accounting policy?
2)
Which is the cost formula used
(i)
Specific identification?
(ii) FIFO?
(iii) Weighted Average?
(b) Is the disclosure made to that effect in accounting policy?
3)
Have you ascertained whether cost includes
(a) Cost of purchase (net of Modvatable duties)?
(b) Direct labour?
(c) Production over heads?
(d) Such other direct cost to bring inventory to their present location and condition?
4)
Whether fixed overhead is worked out on normal production capacity; i.e., after taking into
account loss of
capacity due to planned maintenance?
5)
Have you ascertained that cost of conversion does not include the following :
(a) Interest, (Unless permitted by AS 16)?
(b) Administrative overheads?
(c) Selling and distribution cost?
(d) Abnormal wastage of material, labour and other production cost?
6)
If standard cost method followed to ascertain cost, whether standards reviewed periodically?
7)
In arriving at cost of inventory, whether
(a) Inter-divisional profits eliminated?
(b) Foreign currency fluctuation excluded and charged as expense in respect of foreign
currency loan
obtained against stock?
8)
(a) Is physical verification of inventory taken at year end?
(b) In arriving at net realisable value , have you ascertained
(i)
damaged/obsolete/non-moving stock?
(ii) subsequent sale price after Balance Sheet Date?
9)
Are the inventory in accounts classified into :
(a)
Raw material and components?
(b)
Stores and spares and tools?
(c)
Work-in-progress?
(d)
Finished Goods?
From Auditing Standard Checklist
None
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Rakesh Agarwal
Audit Checklist
From CARO Checklist
SL.
NO.
PARTICULARS
YES/NO/N.A REMARKS
Inventory
1
Whether physical verification of inventory has been conducted, at
reasonable intervals, by the management?
2
Whether the procedures of physical verification of inventory
followed by the management is reasonable and adequate in
relation to the size of the company and nature of its business? If
not the inadequacies in such changes to be reported?
3
Whether the company is maintaining proper records of inventory?
4
Whether any material discrepancies were noticed on such
verification? If so has it been properly dealt with in the books of
accounts?
From Co. Act Checklist
None
From Corporate Governance Checklist
None
Disclosure Requirements Under Schedule VI
Inventories are to be classified under the following heads
•
•
•
•
Stores and spare parts
Loose tools
Stock in Trade
Work in progress
Mode of valuation of stocks including WIP shall be stated and the amount in respect of raw
material shall also be stated separately where ever practicable.
In case of the manufacturing companies, the value of raw material consumed giving item wise
break up and indicating the quantities thereof has to be reported as part of notes on accounts. In
this break up as far as possible all important basic raw materials shall be shown as separate
items.
Intermediaries or components procured from other manufacturers may, if the list is too large to be
included in the break up, be grouped under suitable headings without mentioning the quantities,
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Rakesh Agarwal
Audit Checklist
provided that all those items which in value individually accounts for 10% or more of the total
value of the raw material consumed shall be shown separately with quantities thereof.
Opening and closing stock of goods produced giving break up in respect of each class of goods,
should be reported.
Further in the case of trading companies the purchases made and the opening and closing stocks
giving break up in respect of each class of goods traded and indicating the quantities thereof
should be reported.
In case the work in progress the amounts for which (such works have been completed) at the
commencement and at the end of the accounting period.
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Rakesh Agarwal
Audit Checklist
SAMPLE 2
Review Comments - Section Inventory
Level of Effort – Partner and Manager
Sources – Profession Knowledge, Various Material Collected, Knowledge of
Business.
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Rakesh Agarwal
Audit Checklist
Review Comments – First Round
Mode of Delivery - Coaching
General
1. We appreciate the efforts made for sources of material.
2. Where is SA XX Framework for Control ?
3. Where is SA XX Framework for Assertions arising from Financial Statements ?
4. I think work of experts is required for XX , ensure Compliance with SA XX
5. What questions you will include in your correspondence while ensuring compliance with
relying on the work of internal Auditor SA XX and another auditor SA XX ?
6. Have you assessed analytical review in line with your knowledge of business thereby
responding to SA XX – Knowledge of business, and SA XX, Analytical Review
7. Have you considered steps in relation to Fraud within expectation arising from SA XX.
8. Have you met the disclosure requirement of Schedule VI?
9. etc…….
Technical - (Read Bare Text After Developing Program)
10. NRV needs to be calculated as at balance sheet date. Subsequent sale price may be used
but is not conclusive.
11. Abnormal cost are eliminated but not abnormal gains,
12. etc…..
Client Specific (Settled in past)
13. Report of Valuer (expert) need to be on the file
14. Raw Material Empties are not part of Stock
15. Stock given on loans to be included as part of loans and advances.
16. Fill your Responses to audit checklist proactively for Client X for the year ending March
31, 2007.
17. Depict the Case Study (one time effort for one client)
18. etc…..
Immediate Action Point before Going Forward
1. Interpret Seven Assertion of Audit Evidence and three characteristics of Control Cycle
from SA XX (Time allotted 4 hours)
2. Interpret Risk Environment from SA XX
3. To train yourself for COSO Framework 1973 after understanding SA XX – Time allotted
for training 12 hours per day for 4 days continuously.
4. etc….
Remember Cardinal Lessons to Avoid Frustration During Building – Up Documentation
for First Time
Use Office Hour (for Content collection, reading)
Apply for following period and do not dig up last year files as to what should
have been done
Manage one stop meeting with client
Inquiry may done in first half of the day and in second half just sit on
documenting it
Use MS tools for Flow-charts (very easy to use)
Finish it section by section.
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Audit Checklist
SAMPLE 3
Responding to Auditing Framework on
(a)
Controls and (b) Audit Evidence
Section Inventory
Level of Effort – Partner and Manager
Sources – Navigation Skills
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Audit Checklist
Depict the Case Study (one time effort for one client)
a.
Flow of Transactions;
Initiation of transactions……
Generation of source document…..
Processing of documents …..
Summarization in financial statements
i.
ii.
iii.
iv.
b.
Documents Involved;
List of Various Source documents…
List of Various Voucher generated
List of reports generated
Number of copies of above
Specifying which copy is used for what
Master data;
1.
Component of cost,
2.
Valuation per unit of Cost
Stock Codes and description
3.
i.
ii.
iii.
iv.
v.
vi.
.
c.
Understanding of roles of various personnel involved in
Flow of transactions
i.
ii.
Documentation involved
iii.
Analysis made by them, if any,
d.
i.
ii.
iii.
iv.
v.
Understanding of Various Control Points
Stock reconciliation
Comparison of Book Record with Physical stock take
Stock ageing
Analytical review with respect to Cost v/s NRV
Identification of Cost components at the beginning of the year
i.
ii.
iii.
iv.
v.
Understanding of various layers of reviews including external, reviews
MIS
Internal Audit
Report to Banker
Frequencies of above reviews
Subsequent impact of Observations
e.
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Rakesh Agarwal
Audit Checklist
SA XX/XX - Audit Evidence (Extracts)
Compliance Procedure (Test of Application Controls)
Existence
-
Review of process flow…followed by test of compliance
Review of documentation flow …followed by test of compliance
Review of roles and responsibility …followed by test of
compliance
Review of Controls ….followed by its observation
Effectiveness
-
Physical Stock take reveals nil exceptions
No pointers towards ineffectiveness (e.g. negative stock)
Nil Exception noticed during test of compliance
Continuity
-
Physical stock take is done periodically
Samples selected for Test of Compliance were from throughout
the period.
Substantive Audit Test (Test of Transactions and Balances)
Existence
-
Physical Stock take (refer separate audit program)
Subsequent sales and realization
Rights and
Obligations
-
Clear title to inventory, (where hypothecated the fact disclosed)
Occurrence
-
-
MRN - Receipt of Material (later tallied to Purchase bills or sales
return)
GDN – Dispatch of Material (later tallied to sales bill or scrap
note)
Discrepancies – Physical Stock Sheet
Completeness
-
Cut-off test (MRN, GDN and JV)
Linking Sales cut-off
Attempting Review of P.O. v/s MRN
Stock reconciliation
Valuation
-
Assessing Components of Cost
Comparison with NRV
Measurement
(Accuracy)
-
Checking Calculations
Processing Controls
Presentation and
Disclosure
-
Compliance with AS 2
Compliance with Schedule VI
Reporting Under Long form report
-
.
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Rakesh Agarwal
Audit Checklist
Sample 4 A
Compliance Testing - Interim Balance Sheet - Stock
S.r. No.
I
Particulars
I B Check the following for each GDN
a Pre-printed Serial Control
b Date of dispatch of with DC
c Quantity in Delivery Challan
d Reference to Sales Invoice or Credit Note (Actual Copy from
Accounts)
e Stock coding in accordance with Description
f Check Calculation
g Authorisation of GDN by Stores Incharge
h Entry in Stock Register/ System
III
E
C
WP Reference /Commnets
Y
Y
NE
Y
Y
NE
Y
Y
NE
Y
Y
NE
Y
Y
NE
Y
Y
Y
Y
NE
Y
Y
NE
Y
Y
NE
Y
Y
NE
Y
Y
NE
Y
Y
NE
Y
Y
NE
Y
Y
Y
Y
NE
Y
Y
NE
Y
Y
NE
Y
Y
NE
Y
Y
NE
Y
Y
NE
Y
Y
NE
Select - one samples per months for all the source
documents (MRN, GDN and JV)from Stock register and
Check the Following
1.A Check the following for each MRN
a Pre-printed Serial Control
b Date of Receipt of Material
c Quantity in Delivery Challan
d Quality Control Passing including date of passing and by
whom passed
e Stock coding in accordance with Description
f Check Calculation
g Authorisation of MRN by Stores Incharge
h Entry in Stock Register/System
II
E
Select - Two key stock codes to be audited in Depth
a Check opening balances from p.y closing stock register
b Check that entries during the period are supported by its
Source documents (on a sample basis).
c Confirm that there is no new category of source documents
(say credit notes, )
d Check Quantitative Reconciliation
e Check Balances with Stock take sheet
Review flowchart and ensure the following (not to be
delegated)
25
Y Checked MRN n.o……….
Y Checked GDN n.o……….
Y Checked GDN n.o……….
The segregation was reviewed
before the start of field work but
just confirm the understanding
Rakesh Agarwal
Audit Checklist
a Personnel Preparing MRN and QC and Purchase
b Personnel preparing Dispatch note and Sales Bill
c Personnel maintaining Stores register and Physical Stock
take sheet
d Check that there has been no change in procedure during
the period
IV
Review procedures for stock take and ensure the
following
a Stoppage of Stock Movement
b Stoppage of generation of Source documents
c Stock count is done by personnel other than from Stores
department
d Stock count is done in the presence of personnel from Audit
and Accounts
e The stock take sheet is tabulated and compared with book
records
f Discrepancies are approved by functional heads (may be by
Board)
Y
Y
NE
Y
Y
NE
Y
Y
NE
Y
Y
Y
NE
Y
Y
NE
Y
Y
NE
Y
Y
NE
Y
Y
NE
Y
Y
NE
Audit Personnel
Reviewed by
Conclusion
1. Exception to be Reported
2. Whether further audit steps required
3. The extent to which changes in the system to be noted
4. Control Weakness Points to be Reported
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Rakesh Agarwal
Audit Checklist
Sample 4 B
Substantive Testing at Balance Sheet Date _ Inventory
S.r. No.
E
Particulars
1 Is the inventory valued at lower of cost and net
R
O
C
V
M
PD
y
y
y
y
y
y
WP Reference /Commnets
realisable value
2 Which is the cost formula used ?
a. Specific identification?
b. FIFO?
c. Weighted Average?
y
Is the disclosure made to that effect in
accounting policy?
3 Have you ascertained whether cost includes
y
y
y
y
y
y
y
y
y
a. Cost of purchase (net of Modvatable
duties)?
b. Direct labour?
c. Production over heads?
d. Such other direct cost to bring inventory to
their present location and condition?
4 Have you ascertained that cost of conversion
does not include the following :
a. Interest, (Unless permitted by AS 16)?
b. Administrative overheads?
c. Selling and distribution cost?
d. Abnormal wastage of material, labour and
other production cost?
5 Standard
cost
method
is
reviewed
periodically?
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Rakesh Agarwal
Audit Checklist
6 In arriving at cost of inventory, whether
y
y
y
y
y
y
a. Inter-divisional profits eliminated?
b. Foreign currency fluctuation excluded and
charged as expense in respect of foreign
currency loan obtained against stock?
7 Is physical verification of inventory taken at y
y
y
year end?
8 In arriving at net realisable value , have you
ascertained
a. damaged/obsolete/non-moving stock?
b. subsequent sale price after Balance Sheet
Date?
9 Are the inventory in accounts classified into :
y
a. Raw material and components?
y
b. Stores and spares and tools?
y
c. Work-in-progress?
y
d. Finished Goods?
y
10 Has disclosure being made of following’
y
a. the value of raw material consumed giving
item wise break up and indicating the
quantities
y
b. opening and closing stock of goods
produced
y
Audit Personnel
Reviewed by
Conclusion
1. Exception to be Reported
2. Whether furthur audit steps requried
3. The extent to which changes in the system to be noted
4. Audit adjustments to be Reported
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Rakesh Agarwal
Audit Checklist
Solution Exercise 1 - Identification of Checklist
Sr. No
Type
General Areas
Staffing Level
Timing
Standard/ Creatio Upda Execut Revi Interi Proa Final
Customize n
te
ion
ew m
ctive
1 Auditing Standard Checklist
2 CARO Checklist
3 Accounting Standard Checklist
None
Standard +
None
1
1
1
2
2
2
3
3
3
1
1
1
4 Company's Act Checklist
5 Schedule VI
5 Corporate Governance Checklist
Standard +
None
Standard +
1
1
1
2
2
2
3
3
3
1
1
1
6 Firms Internal Protocal Checklist
Standard
1
2
3
1
Specific Areas
1 ShareCapital
2 Reserves and Surplus
3 Borrowings
4 Creditors
5 Oustanding Liabilities
6 Gratuity & Leave Provision
7 Taxation
8 Contingent Liabilities
9 Fixed Assets
10 Investments
11 Inventories
12 Sundry Debtors
13 Current Assets
14 Profit and Loss Account
15 Profit and Loss Anaytical Review
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
Customize
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
2
2
2
2
2
2
2
2
2
2
2
2
2
2
2
16 Specific Cycle - Purchase
17 Specific Cycle - Sale
18 Specific Cycle - Inventory
Customize
Customize
Customize
1
1
1
2
2
2
4
4
4
2
2
2
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Y
Question for Participants
1 Identify Checklist to be Responded as either Standard or Customize
2 Identify Level of Staffing to be Deployed (1 Partner, 2, Manger, 3 Qualified, 4 Article) for Creation,
Update and Review
3 Identify Timing for its Execution (Interim, Proactive, Final)
29
Rakesh Agarwal