The document discusses auditing procedures for revenue, expenditures, trade receivables, trade payables, and cash and bank balances. It outlines key control features and audit procedures to verify existence, completeness, accuracy, classification, valuation and rights/obligations for these accounts. Procedures include testing supporting documentation, confirmations, cut-off testing, and verifying proper financial statement presentation. The purpose is to ensure transactions are valid, recorded correctly and in the proper period.

1. Chapter 3
Audit on Financial Statement

2. 3.1 Understand The Revenue and
Expenditure Components
Revenue
total income received from a given source (cash inflow)
 Sales
 Accounts receivable
 Cash receipt
Expenditure
A spending or consuming (cash outflow)
 Purchase
 Accounts Payable
 Cash payments

3. 3.1.1 The Purpose of Auditing The Revenue
and Expenditure Components
Measured at their fair value of the consideration received or
receivable
Ensure voluntary compliance between all documentations,
control, policies and guidelines
Test control for detection significant weakness check financial
statement

4. 3.1.2 The Evidence for Revenue and
Expenditure Components
 EVIDENCE SELECTION
a. Sales of goods and services
b. Payments received for goods and service
c. Good returned by claims received from customers

5. A) Sales of goods and services
Receiving and recording customers orders
Authorising credit terms and shipment
Confirming orders
Executing shipping orders for goods or work orders for the
performance of services
Recording the shipment or services performed

6. B) Payments received for goods and
services
 Receiving the cash and depositing in the bank cash
 Comparing amounts remitted with recorded amounts
 Authorising discounts and allowances
 Recording cash receipt, discount and allowances

7. C) Good returned by claims received from
customers
o Receiving and accepting goods and claims
o Preparing receiving report
o Reviewing claims
o Authorising credits
o Preparing and malling credit memo
o Recording returns and claim

8. 3.1.3 Audit Objectives and Assertions on
Revenue and Expenditure Components
 Existence = revenue and expenditure exist at given date
 Completeness = disclosed transaction must be occur within
the period
 Accuracy = transaction recorded in proper account
 Classification = transaction recorded in proper account
classification
 Timing = revenue and expenses is allocated in proper period
 Posting and summarisation = presented in SOFP and
classified correctly

9. 3.1.4 The Audit Test To Be Used When Auditing The Revenue and
Expenditure Components
ASSERTIONS TEST OF CONTROL SUBSTANTIVE TEST
EXISTENCE Examine sales invoice for supporting bill
of lading and customer order
An auditor is concerned with three types of misstatement:
• Recorded sale with no shipment
=trace from sales journal entry to shipping document
• Sales recorded more than once
=check cancellation of shipping documentation
• Shipment made to non existent customers
=person recording sales should not authorised shipment
COMPLETENESS Account for sequence of shipping
document
• Many audits ignore completeness on the grounds that
overstatement of income of is greater concern
• However errors may still misstate financial statement
• One effective procedure is to trace from shipping documents
to the sales invoice and entry in the sales journal

10. 3.1.4 The Audit Test To Be Used When Auditing The Revenue and
Expenditure Components
ASSERTION TEST OF CONTROL SUBSTANTIVE TEST
ACCURACY Examine the approved price list
for accuracy and proper
authorisation
Start with entries in the sales journal and compare
the total of selected transactions with accounts
receivable master file entries and duplicate sales
invoice
CLASSIFICATION Examine document package for
duplicate verification
• When there are cash and credit sales, it is
important not to debit accounts receivable for a
cash sale or to credit sales for collection
receivable
• It is also important not to classify sales of
operating assets as sales
• A common procedure is to examine duplicate
sales invoices for proper account classification

11. 3.1.4 The Audit Test To Be Used When Auditing The Revenue and
Expenditure Components
ASSERTION TEST OF CONTROL SUBSTANTIVE TEST
TIMING Account for sequence of shipping
documents
• Sales should be billed when ownership is
transferred to the customer
• A common procedure is to compare the date on
the duplicate sales invoice and bill of lading
POSTING
AND
SUMMARISATION
Examine evidence that account
receivable master file is
reconciled to general ledger
Use audit software to foot the sales journal and trace
totals to general ledger=

12. 3.1.5 Audit procedures on
Revenue and Expenditure
Components

13. The key control features and the audit procedures
to be carried out for a sales system
Key control
features
Audit procedures Audit assertions
1.acceptance of
orders
1.Ascertain the manner order are taken, whether orally, in written
from or electronically
2.Check to documentation for orders
3.Check for approvals for acceptance of orders
4.Ascertain follow-up actions taken for unfulfilled orders
Existence
Occurrence
2.Goods outwards
& returns of goods
1.Check allocation of inventories based on approved orders
2.Ensure proper approvals obtained for dispatch of goods
3.Ensure proper recording of inventory movements
4.Ensure damaged inventories are properly accounted
5.Check return of inventories to appropriate documents
Occurrence
3.Pricing 1.Check to ensure an official price list is used
2.Check terms & conditions for discounts or variation in pricing for
certain customers
Right /
Obligations
Measurements

14. The key control features and the audit procedures to be
carried out for a sales system
Key control
features
Audit procedures Audit
assertions
4.Invoicing 1.Ascertain invoicing system
2.Ensure invoice are referenced to orders & delivery notes
3.Check pricing and ensure terms of sales are in accordance
with company’s policies
4.Ascertain reasons for cancellation of sales invoice
5.Check calculations
Completeness
Measurement
Valuation
5.Credit Notes 1.Ensure proper authorization for issue of credit notes
2.Verify reasons for issuance
3.Vouch to supporting documents for return of goods,
discounts given, adjustments in pricing ,etc.
Existence
Occurrence

15. The key control features and the audit procedures to
be carried out for a sales system
Key control
features
Audit procedures Audit assertions
6.Credit Control 1.Ascertain system of credit control in force
2.Ascertain company’s approved credit limits & periods
3.Check subsequent payments from customers
4.Reveiw credit control reports
5.Identify doubtful debt cases and ascertain actions taken by
management
6.Review correspondences with customers & lawyer
Existence
Occurrence
7.Posting to
Ledger
1.Check posting to inventory, debtors & general ledger accounts
2.Check reconciliation of debtors subsidiary & control accounts
Measurement
Completeness

16. Audit Procedures for Receipt System
Key Control
Features
Audit Procedure Audit Assertion
Issue of Official
Receipts
• Ensure official receipt are issued in numerical sequence
• Check acknowledgement of receipt by person issuing the official receipts
• Existence
• Occurrence
Collections • Ensure cash collections are in safe custody
• Ensure cheque collections are properly accounted
• Existence
• Occurrence
Documentation • Vouch to sales invoices and other relevant supporting documents for receipts • Rights &
Obligation
• Occurrence
Banking • Check to bank-in slips to ensure that collections are bank-in promptly and
intact
• Check receipts to cash book and bank statements
• Occurrence
• Completeness
Reconciliation • Examine bank reconciliation statements and ensure outstanding items are
subsequently cleared
• Ensure that bank reconciliations are reviewed by a responsible official
regularly
• Completeness
Posting • Trace transactions to cash book and bank statement
• Check posting to cash book, debtors subsidiary ledgers and general ledgers
• Measurement
• Completeness

17. The key control features and the audit procedures to be
carried out for a purchases system
Key Control
Features
Audit Procedures Audit Assertions
1.Requisition 1. Ascertain system for requisition for purchases & service
required
2. Check approvals for requisition of purchases & service
required
Existence
Occurrence
2.Purchases
Orders
1.Check approvals for issue of purchase order & the
authorization limits
2.Check purchase order to requisition forms
3.Vouch to quotation from suppliers
4.Obtain list of normal suppliers, where available
5.Check terms & conditions for purchases
Existence
Occurrence

18. The key control features and the audit procedures to be carried out
for a purchases system
Key Control Features Audit Procedures Audit
Assertions
3.Good Inwards &
Return Of Goods
1.Check goods received notes to purchases orders & copy of suppliers delivery
notes
2.Ensure indication of check for quantity & quality of good received
3.Check that goods returned to suppliers are documented
4.Ascertain basis of valuation of inventories (costing)
5.Check computation of costing of inventories
6.Check posting of inventories to inventory records / subsidiary ledgers
Occurrence
Measurement
Completeness
Valuation
4.Invoices & Credit
Notes From Suppliers
1.Match suppliers invoice to purchase order & good received notes
2.Ensure invoice are cross-referenced to purchase order and goods received
notes
3.Check prices, arithmetical accuracy and other terms of purchase
4.Ensure that credit notes received are matched to the corresponding return of
goods
5.Ascertain system of control over suppliers invoices
Rights /
Obligations
Measurement

19. The key control features and the audit procedures to be carried out for a
purchases
Key Control
Features
Audit Procedures Audit
Assertions
5.Payments 1.Ensure all supporting documents are attached & checked for
arithmetical accuracy
2.Ensure proper approvals are given
3.Check that discount or credits given have been received & netted off
against the payments
Existence
Occurrence
6.Reconciliation Of
Statements
1.Ensure suppliers statements are reconciled regularly
2.Reveiw reconciliations & ensure long outstanding items are resolved
Completeness
7.Posting To
Ledgers
1.Check posting to inventory, creditors subsidiary & general ledger
accounts
2.Check reconciliation of creditors subsidiary & control accounts
Measurements
Completeness

20. Audit Procedures for Payments System
Key Control
Features
Audit Procedure Audit Assertion
Issue of Payment
Vouchers
• Ensure payment vouchers are issued in numerical sequence
• Ensure proper allocation of expenses to accounts
• Ensure indication of check by person issuing the payment vouchers
• Ensure all cheques are crossed “A/C Payee Only
• Existence
• Occurrence
• Measurement
Documentation
and Approvals
• Ascertain limits of authorization for payments and for cheque
signatories
• Ensure that there are proper approvals for payments made
• Vouch to relevant supporting documents for payments and ensure
that they are stamped ‘PAID’
• Ensure official receipts are obtained as acknowledgement of
payment
• Existence
• Occurrence
• Rights &
obligations
Reconciliation • Examine bank reconciliation statements and ensure outstanding
items are subsequently cleared
Completeness
Posting • Trace transactions to cash book and bank statements
• Check posting to cash book, creditors subsidiary ledgers and
general ledgers
• Measurement
• Completeness

21. 3.4 Understand The Auditing at Trade
Receivable and Payable
TRADE RECEIVABLE
• Trade receivable are due from customers for goods sold or services
performed in the ordinary course of business
TRADE PAYABLE
• Account payable include liabilities for which invoices have been received
for goods and services received

22. 3.4.1 The Purpose of Auditing the Trade
Receivable and Trade Payable
TRADE RECEIVABLES
• To ensure that trade receivables are recorded appropriately
• To determine whether trade receivables are recoverable
TRADE PAYABLES
• To ensure that trade payables are properly recorded
• To estimate potential losses from purchase commitments

23. 3.4.2 The Evidence to Audit Trade
Receivable and Trade Payable
• Used by auditors in arriving at the conclusions on which the
audit opinion is based.
• Source of evidence are knowledge of the business and
industry, analytical procedures, test of control, direct tests of
account balance.

24. 3.4.2 The Evidence to Audit Trade
Receivable and Trade Payable
Trade Receivable Trade Payable
 General ledger, debtor’s ledger, bank
statement, invoice issued and receipt
book
 General ledger, creditor’s statement,
bank statement, bills and payment
voucher
 Findings:
• Trade receivable balance have been
properly maintained, describe and
disclosed
 Findings:
• Trade payable balance have been properly
maintained, describe and disclosed
CONFIRMATION
POSITIVE CONFIRMATION – Debtor request to reply whether he agrees or not
NEGATIVE CONFIRMATION – Request a reply in the case of disagreement
AUDIT EVIDENCE

25. 3.4.3 Audit Objectives on Trade
Receivable and Trade Payable
TRADE RECEIVABLE
• To ensure that trade receivables are properly recorded and genuine
• To ascertain whether trade receivables are recoverable
TRADE PAYABLE
• To ensure that trade payable are properly recorded and genuine

26. 3.4.3 Audit Assertions on Trade
Receivable and Trade Payable
• Existence – Ensures the trade transactions is exist by comparing the disclosed
amounts to sales invoice or supplier’s invoice
• Occurrence – Ensures the trade transactions and events have been occurred
during the accounting year
• Valuation – Able to identify and quantify trade receivables and payables and
recalculating the balances
• Accuracy – Amounts in trading transactions have been recorded appropriately
• Completeness – Determine the trades, debtors and creditors balances are recorded
accurately in proper period
• Classification – Ensure that trade receivables and payables are properly disclosed in
financial statement

27. 3.4.4 Audit Procedures to be Used
When Auditing Trade Receivable
Audit Procedures Audit Assertions
1 Obtain an aging listing of trade receivables (debtors) balances
2 Test balances and aging by comparing amounts to sales invoices and the debtors
subsidiary ledgers
• Existence
• Occurrence
3 Select samples of trade debtors accounts for confirmation and reconcile differences that
arise
• Existence
• Valuation
4 Review aging listing for recoverability of long outstanding balances and check payments
history of trade debtors
for the period under review
• Valuation
• Accuracy
5 Consider write off of bad and doubtful debts by discussing with clients on their
recoverability. Note cases that are under legal action and ascertain the status of the
legal action
• Valuation

28. 3.4.4 Audit Procedures to be Used
When Auditing Trade Receivable
Audit Procedures Audit Assertions
6 Check subsequent payments by trade debtors after year end • Existence
7 Carry out a year end cut –off test to determine whether sales and debtors balances
are recorded correctly and accurately in proper accounting period
• Completeness
• Cut-off
8 Identify and quantify trade debtors accounts with credit balances at year-end and
consider reclassifying the credit balances to trade payables
• Valuation
9 Review credit notes issued subsequent to year-end and ensure that the credits
given are not in respect of sales transactions for the year under review
• Valuation
• Cut-off
10 Ensure that trade receivables are properly disclosed in the financial statements • Classification
• Understandability

29. 3.4.5 Audit Procedures to be Used
When Auditing Trade Payable
Audit Procedures Audit Assertions
1 Obtain an aging listing of trade payables (creditors) balances
2 Test balances and aging by comparing amounts to suppliers invoices, statements and
creditors ledgers
• Existence
• Occurrence
3 Select samples of trade creditors for confirmation and reconcile differences that arise • Existence
4 Check subsequent payments by creditors after year end • Existence
5 Carry out a year end cut-off test to determine whether purchases and creditors
balances are recorded correctly and accurately in the proper accounting period
• Completeness

30. 3.4.5 Audit Procedures to be Used
When Auditing Trade Payable
Audit Procedures Audit Assertions
6 review suppliers’ invoices, credit notes and debit notes received after year end
for omission of liabilities or over-statement of purchases, where relevant
• Completeness
• Valuation
• Rights & obligations
• Cut-off
7 identify and quantify trade creditors’ accounts with debit balances at year-end
and consider reclassifying the debit balances to trade receivables
• Valuation
8 ensure that trade payables are properly disclosed in the financial statements • Classification/
• Understandability

31. 3.2 The Cash and Bank
Balances Evidence

32. 3.2.1 Purpose of Auditing The Cash and
Bank Balances
• To ensure that the cash and bank balances are properly
accounted
• To ensure that fixed deposit and interest income received
are properly accounted

33. 3.2.2 Evidence For Cash and Bank
Balances
• Liquid assets and include: notes and coins, bank current accounts, bank
deposit accounts
• Vulnerable assets because of its liquidity
• Easily verified because they can be confirmed directly by third parties or
by physical counts

34. 3.2.3 Audit Objectives and Assertions On
Cash and Bank Balances
Audit Assertions Descriptions
Existence To ensure that the cash is actually in existence and belong to the
company at a given date or at the year-end date
Completeness To ensure that there is no unrecorded cash
Accuracy To ensure cash at bank stated on the reconciliation is accurate
Cut-off To ensure that amounts are correctly recorded in the proper period
Presentation and
Disclosure
To ensure that the cash balances is correctly disclosed in the
Financial Statement

35. Audit Procedure For Bank Reconciliation
Key Control
Features
Audit Procedures Audit Assertions
1. Regular
preparation
1. Obtain monthly bank reconciliation statements
2. Check balances to cash book and bank statements
• Completeness
2. Follow-up 1. Ensure outstanding items are subsequently cleared
2. Ensure items in the bank statement but not in cash
book are subsequently taken up and vice versa
3. Confirm balances with banks
4. Ascertain any overdraft facilities ad securities, where
relevant
• Existence
• Occurrence
• Rights /
obligations
• Completeness
• valuation
3. Review 1. Ensure indication of review of bank reconciliations by
a responsible official

36. Audit Procedure For Cash-in-hand
Key Control Features Audit Procedures Audit Assertions
1. Company’s policy 1. Ascertain company’s policy for the handing of physical cash
2. Petty cash 1. Ascertain whether petty cash is maintained on an imprest system
2. Check that proper supporting documents are attached for petty cash
payments
3. Ensure that there are proper approvals
4. Check limits of reimbursements for petty cash
5. Ensure petty cash payment voucher are properly stamped “PAID”
after reimbursement
6. Ensure proper analysis of expenses
7. Conduct surprise count for petty cash
• Existence
• Occurrence
• Right/
Obligations
• Measurement
3. Cash collections 1.Ascertain basis of cash held for operations purposes
2.Ensure that cash collections are blanked-in promptly and intact
3.Ensure that cash held overnight are kept in safe custody
4.Obtain confirmation of cash held as at year end
• Existence
• Occurrence
• Right/
Obligations
• Valuation
4. Posting 1.Check posting to petty cash book and accounts in the general ledgers • Completeness

37. Audit Procedure For Cash Balances and
Bank Balances, and Fixed Deposit
Audit Procedures Audit
Assertions
I. Cash and Bank Balances
1. Obtain a copy of the bank reconciliation statements and check subsequent
clearance of outstanding items, noting debts of clearance
• Occurrence
2. Where items have remained uncleared for a long period of time, obtain details of
payees, date of issue of cheques, uncredited amounts banked in, dates banked-in, etc
• Occurrence
3. Obtain direct confirmation from banks for balances and credit facilities outstanding
as at the date of period/year under review
• Right/
Obligations
4. Obtain written confirmations for cash-in-hand and petty cash-in-hand, where
relevant
• Existence
5. Identify whether credit facilities are secured on any assets of the company, and if
so, extract information for disclosure in the notes to the financial statements
• Right/
Obligations

38. Audit Procedure For Cash Balances and
Bank Balances, and Fixed Deposit
Audit Procedures Audit Assertions
II. Fixed Deposits
6. Check fixed deposits to fixed deposit certificates and verify the details
to ensure that the principal amount, maturity dates, interest rates and
other terms and conditions are correct
• Completeness
• Valuation
7. Check calculation of accrued interest income as at year end and
ensure that the accrued income has been properly accounted
• Accuracy

39. 3.3. Auditing In
Investment

40. 3.3.1 Purpose of Auditing The
Investment
• To ensure that purchases and disposal of investment
are properly authorized, recorded and accounted for
• To ensure that investment are properly valued and
disclosed in the financial statements

41. 3.3.2 The Evidence of Auditing The
Investment
• The investment may be in debt or equity securities may be marketable
or non-marketable
• Investment may be a loan or an advance rather than security
• Company have security are held may be affiliated or not affiliated
• Long term investment
• Obtain Investment listing

42. 3.3.3 Audit Objectives and Audit
Assertions on Investment Component
 Existence and occurrence
recorded investment asset and equity balances represent investment that exist at the
balances sheet date
 Occurrence
investment revenues, realized gains and losses, and unrealized holding gains and losses
included in income resulted from transactions and events that occurred during the period
 Completeness
all the investments are included in the balances sheet investment accounts are recorded
accurately
 Rights and obligations
all recorded investments are owned by reporting entity
 Presentation and disclosure
investment balances are property identified and classified in the financial statements

43. Audit Procedure For Investments
Audit Procedure Audit Assertions
1. Obtain a listing of investments held by the company at year end
2. Ascertain the nature of the investments, ie. Subsidiaries, associates, joint
ventures, and other investments
• Occurrence
3. Sight minutes of the board and/or shareholders (where relevant) for
authorization for the purchase/ disposal of the investments
• Completeness
4. For quoted shares, vouch purchases/sales to brokers buy/sell transaction
notes to ensure that the number of shares bought/sold, the share price,
commissions and other chargers are taken up correctly
• Existence
• Completeness
5. For quoted shares, vouch to the Central Depository Systems(CDS)
statements to confirm the date and number of shares purchased/sold and the
number of shares held as at year end
• Existence
• Completeness
6. For unquoted shares, vouch purchases/sales to purchase/sale agreements
for the number of shares purchased/sold, the purchase/sale price, the terms
and conditions for payments
• Existence
• Completeness

44. Audit Procedure For Investments
Audit Procedure Audit Assertions
7. Ensure payments/proceeds for the purchases/sales are properly
accounted for and recorded in the books
• Completeness
• Accuracy
8. Ensure that dividends or interests have been received and properly
accounted for in the books
• Rights/Obligations
• Accuracy
9. Ensure proper disclosure of investments in the financial statements • Classification/
Understandability