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Y/E 31 December 2xxx

Audit Planning Memorandum

This audit-planning memo is prepared for the audit work to be conducted for the year ended 31 December 2xxx.

1. General information

- (CLIENT) was established by five shareholders with a capital of Birr xxxxxxx and started operations
in mm/yy. It had an income tax exemption period for two years starting from the factory operation
date, which has now ended.

2. General audit procedures

a) Obtain an understanding of the project activities and the system for recording financial information and
preparing financial statements.
b) Check for implementation of previous year findings as per the recommendation made.
c) Obtain a copy of contact agreement, if any, relevant to permanent file.
d) Obtain the trial balance and with ledger, check the casting in the ledger, since it is prepared manually.
e) Obtain manuals of the company and retain a copy in the permanent file, if there is any.
f) Make an exit conference with management.
3. Specific Audit Procedures

A) Balance Sheet
Fixed Assets

a) Obtain fixed assets schedule and check against ledger account and ensure the correctness
of balances.
b) Vouch material additions against suppliers invoice and ensure management
c) Check that additions are included to the fixed assets register.
d) Check identification and registration of additions and disposals
e) Check approval, proper coding and posting to ledger accounts.
f) Ascertain ownership and documentation and obtain fixed assets count sheet.
g) Check counted assets to the register on sample basis.
h) Physical existence on major assets (on sample basis only)
i) Verify vehicles title deed certificate and ensure annual inspection by the
concerned body.
j) Check the rates used for computation of depreciation is correct.
k) Check fixed assets of the company are insured appropriately.
l) Summarize and conclude
i. Inventory
a) Obtain schedule for each stock item.
b) Obtain the valuation sheet that shows quantity, type, unit price and total value.
c) Check the correctness of extension and casting, if possible electronically.
d) Agree our sample year-end count against quantities on valuation sheet.
e) Agree quantities on valuation sheet against client year-end count sheet.
f) Verify the unit costs used and also if they were according to the company's policy.
g) Check total value of each item on schedule against ledger.
h) Identify stock items without movement for more than a year that needs provision.
i) Check stock opening balance from our last year working paper.

j) Check the increase or decrease in provision was made according to the company
k) Obtain schedule or list of GIT items.
l) Vouch material GIT items.
m) Agree total of GIT items with ledger.
n) Check the subsequent clearance of GIT items and enquire a justification for long
outstanding items.

iii. Receivables
a) Obtain schedule of accounts receivable.
b) Select material receivable balances and circularize a confirmation.
c) Identify balances with no movement for more than a year and check if adequate
provision is held for such balances.
d) Check subsequent clearance for major balances.
e) Obtain adequate supporting documents if there are any write-offs.
f) Reclassify negative balances to payables
g) Check correctness of prepayment amount by checking or vouching against
documents like agreements
h) Agree receivable balances on schedule with ledger.

iv. Cash
a) Obtain schedule of bank accounts.
b) Obtain bank reconciliation of each bank account and agree with schedule balances.
c) Check that reconciled balances on bank reconciliation agree with ledger.
d) Check reconciling items on reconciliation against supporting documents.
e) Check subsequent clearance of reconciling items.
f) Check the balance of bank confirmation against the bank reconciliation.
g) Obtain list of cash on hand both for petty cash and main cash.
h) Check our year-end count against the list provided.
i) Obtain a copy of cash count sheet from client for sub branches we have not counted
at the year-end.
j) Agree total of the list balance with ledger.

v. Payables
a. Obtain schedules for all payable and accrued charges
b. Circularize a creditor's confirmation for major balances.
c. Ascertain the correctness of balances (with makeup) and check against ledger
d. Check basis of estimation for accruals.
e. Check subsequent settlement.
f. Check that taxes are paid on time.
g. Agree the balances on schedule with ledger.

vi. Capital
1. Check that the share capital has been fully paid
2. Obtain a list of shareholders.
3. Check that legal reserve is held according to the commercial code.
4. Check that retained earnings agrees with income statement.
5. Summarize and conclude

B) Cash Flow Statement
1. Obtain a cash flow statement.
2. Check that it is prepared properly and check its correctness.
3. Summarize and conclude.
C) Income and Expenditure statement
i. Income
a. Check the revenue quantity analytically.
b. Vouch the other income, if any.
c. Check the completeness of income from other sources like interest income.
d. Summarize and conclude.
ii. Expense
a. Vouch against supporting documents for major expenditures.
b. Use analytical procedure to check the completeness of expenditures like salary & rent.
c. Summarize the accounts like contraceptives to arrive at total amount.
d. Summarize and conclude.
C. Transaction Audit
The transaction audit will be used to test the system is operating properly or not and to satisfy
ourselves and reduce the substantive work to be done. The transaction test should include the
i. Cash receipt voucher
ii. Credit sales invoice
iii. Cash sales invoice
iv. Cash payment voucher
v. Bank payment voucher
vi. Store procedure
vii. Payroll
viii. Foreign purchase

-Summarize your findings

-Assess controls in the systems, which counter balance the effect of weakness identified.
-Adopt additional audit approach, if the systems have a major weakness.
-Record the preliminary assessment of the adequacy of the system as a basis for the preparation of
-Evaluate the internal control of the organization to decide whether there are any controls on
which it would be cost effective to place reliance.
D. Others
-List the most important areas of the organization's financial statements i.e. those areas with inadequate
or contradictory evidence which would result in an audit qualification, or conversely those items in
the account for which satisfactory audit evidence which make substantial contribution to unqualified
audit opinion.
-Check implementation of points raised under previous year's audit report and ICM. Assess their impact
on current year audit.

iv. Materiality
The threshold for materiality from a single transaction for expenditure is 15% of the total

E. Time table

Budget Actual
2007 2006

Introduction 4 2
Planning memo 4 -
Updating permanent file 4 -
Minute review 4 -
Cash receipt voucher 8 12
Credit sales invoice 40 80
Cash sales invoice 16 8
Cash payment voucher 8 -
Bank payment voucher 8 16
Store procedure 8 -

Payroll 16 -
Foreign purchase 36 48
Income 20 24
Expenditure 180 264
Cash 16 24
Receivable 16 24
Inventory 8 11
Fixed Asset 16 18
Payable 24 32
Capital 1 1
Finalization 40 136
Discussion 8 -.

Total Time 485 700