CAPPUCCINO SQUAD (Group 4)

AUDIT PROGRAM FOR LOANS PAYABLE

AUDIT OBJECTIVES AUDIT PROCEDURE AUDIT EVIDENCE

 Assess the reasonableness
 Long term loans and
of design of system of
advances are completely
internal control by
and accurately recorded.
enquiring relevant client
personnel and documenting
 All recorded long term loans
the same (if not a
and advances actually exist.
documented system manual
has been developed by the
 Long term loans and
client). A walk through test
advances are recorded at
would be necessary to
appropriate values and all
confirm the understanding
bad and doubtful balances
as documented. Identify the
have been provided for/
preventive (exercised
written off.
before incurrence of
transactions and event) and
 Long term loans and
detective (exercised after
advances recorded are the
incurrence of transactions
right of the company.
and event) controls
established by management
 Long term loans and
to support its assertions.
advances to associated
 Check on sample of selected
undertaking were in
transactions covering the
accordance with legal
whole period that all
requirements.
preventive controls are
exercised on all
 Long term loans and
transactions.
advances are presented and
 Check that proper
all disclosures have been
subsidiary records have
given in accordance with
been maintained and
the Fourth Schedule of the
entries are made in the
Companies, 1984 and
same on prompt and
relevant IASs.
consistent basis and the
same is reconciled with
general ledger.
 Check on a sample of
transactions that detective
controls are appropriately
been exercised and in case
of any detection of
 error/fraud, proper steps
have been taken to avoid
recurrence of the same.
 For sample of
disbursements made during
the year:
(a) Check approval of
appropriate level of
management.
(b) Check that the
employee has fulfilled
all formalities necessary
before disbursement of
loans.
 Ensure that management
does not override the
designed controls by:
(a) Enquiring from the
designated staff person
(b) Remain skeptical during
performing test of
design and test of
effective operation.
 Document the conclusion
after performing test of
controls and required level
of assurance from
substantive procedures.
 Obtain an employee-wise
movement schedule of
principal amount of loans
and advances and interest
thereon and trace the
opening balances from the
general ledger, subsidiary
records, and last year
working papers. Check
casting and cross casting of
the schedule.
 For disbursement made
during the year check
disbursement of funds with
disbursement register and
bank statement.
 For a sample of repayments
made during the year:
(a) Ensure that amount and
date of repayment was
accordance with
repayment schedule or
agreement.
(b) Check receipt of funds
with receipt records
and bank statement.
(c) Recovery of interest is
in accordance with the
policy (i.e along with
principal or after
recovery of full
principal, as the case
may be)
 Circularize confirmations to
selected parties. Match
replies with the amounts
outstanding against each
party.
 Obtain age analysis of long
term loans and advances
and perform the following:
(a) Verify that loans have
been classified in
corrected categories.
(b) Current maturity has
been appropriately
calculated and
separately disclosed.
(c) Consider the value of
securities available
against each loan for
the purpose of
calculation of provisions
for doubtful loans and
advances.
 Check subsequent recovery
of loans etc.
 Ensure that all loans and
advances to associate
undertakings are granted
 after due compliance with
legal requirements.
 Ensure that none of the
loans and advances are
impaired or the recoverable
amount of a loan or
advance is not less than its
carrying amount. If the
carrying amount of a
loan/advance is more than
its recoverable amount,
then same should be
reduced to recoverable
amount recognizing the
reduction as impairment
loss.
 For items stuck-up for
considerable period of time,
inquire about its status from
the management. Compute
provisions if required and
ask for management
representations.
 Ensure that loans and
advances should be
measured at amortized cost
using the effective interest
rate method.
 Reperform calculation of
interest income on test
basis:
(a) Verify rate of interest
from agreement/policy.
(b) Check the number of
days for which interest
is to be charged.
 Test check loan agreement
and legal documents to
verify the terms and
conditions of the advances.
 Ensure that closing balances
as per our working paper
 file are in match with
general ledger.
 Determine that disclosures
have been made in
accordance with the
requirements of Fourth
Schedule to the companies
ordinance, 1984 and the
applicable IASs.