Balance Sheet Review

Audit Work Program

PROJECT TEAM (LIST MEMBERS):

Project Timing Date Comments

Planning
Fieldwork
Report Issuance (Local)
Report Issuance (Worldwide)

AUDIT OBJECTIVES
To determine if:

 Close the books (CTB) controls are in place and effective

 The cash balances represent all cash and cash items on hand, in transit to or in financial institutions,
and are properly recorded
 The cash balances are properly described and classified, and adequate disclosures are made of
restricted or committed funds and of cash not subject to immediate withdrawal
 Receivables represent all amounts owed to the entity at the balance sheet date and have been
properly recorded
 The allowances for doubtful accounts, returns, and allowances and discounts are adequate but not
excessive
 Receivables are properly described and classified, and adequate disclosures with respect to these
amounts (including disclosures of amounts that have been pledged, discounted, or sold with recourse
or are with related parties) have been made
 Prepaids and other assets represent all proper charges or amounts that can be reasonably expected
to be realized through future operations or otherwise, and are properly recorded
 Prepaids and other assets are properly described and classified, and adequate disclosure with respect
to these amounts has been made
 A/P represent all amounts currently payable by the entity for resources and services acquired at the
balance sheet date and have been properly recorded
 A/P are properly described and classified and adequate disclosures with respect to these amounts
have been made
 Fixed assets represent all tangible assets owned or held under capital lease that are used in the
entity's operations or are under construction, and they are properly recorded at cost on a consistent
basis
 Additions to fixed assets during the audit period are proper capital charges and represent all actual
physical properties installed or constructed
 Accrued liabilities represent all obligations for resources and services acquired through the balance
sheet date and have been properly recorded
 Accrued liabilities are properly described and classified and adequate disclosures with respect to
these amounts have been made
 Suspense accounts are monitored and cleared timely

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 Clearing accounts are monitored and cleared timely

Time Project Work Step Initial Index

General
Review the CTB account checklist to ensure that each account on the TB is
assigned to someone for reconciliation.

Cash
Analytical Procedures: General & Review of Cash Management System
 Compare the balance of each significant cash and cash equivalent
account with the comparable balance for the preceding period. Investigate
significant or unusual fluctuations.
 Obtain an understanding of the client's cash management system and the
business purposes of the practices involved. Document this information in
a memorandum.

Tests of Bank Reconciliations

 Obtain a copy of client-prepared bank reconciliations.
 Test clerical accuracy.
 Tie bank balance per reconciliation to bank statement, bank confirm, and
to lead schedule or trial balance.
 Obtain a list of outstanding checks for selected accounts.
– Clerically test list of checks and compare the list to the bank
reconciliation.
– Scan each list for unusual amounts (e.g., round amounts, repetitive
amounts, unreasonably large amounts, etc.). List any such items for
further investigation.
– Test completeness of the outstanding checklist through review of the
month bank statement, noting inclusion of all checks written prior to
period-end and clearing in subsequent period.
– Investigate any long outstanding checks. Determine whether an
adjustment is necessary.
 Verify significant deposits in transit by tracing the amounts to the
subsequent bank statement. Investigate any unusual delays in the credit
of such amounts by the bank.
 Review the reconciliations for any large or unusual items. Investigate
other reconciling items (e.g., bank errors, deposit corrections, bank
charges, returned checks, etc.).

Other Procedures
 Inquire of management as to the existence of any cash restrictions as of
the balance sheet date. For restrictions identified, determine if the funds
should be classified separately, with appropriate disclosures made in the
financial statements.
 Inquire of management if any checks were held as of period-end.
Determine whether they have been properly included in cash and A/P
balances.

Accounts Receivable (A/R)

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Time Project Work Step Initial Index
Analytical Procedures
 Compare the balance of each significant receivable account with the
comparable balance for the preceding period. Investigate significant or
unusual fluctuations.

Tests of the A/R Aged Report

 Obtain the Aged A/R Report as of (Specific Date). Note that the report
must be run as of that date, as the system cannot go back in time.
Clerically test the A/R Aged Report on a scope basis.
 Scan the Aged Report for large/unusual balances or amounts (e.g., credit
balances, amounts due from related parties, etc.). Investigate and
examine supporting documentation, as appropriate.
 Test aging of individual invoices on a scope basis. Review invoices,
noting invoice numbers and dates. Determine if invoices are categorized
in appropriate aging categories.
 Compare aging statistics with those of prior periods. Investigate
significant trends or fluctuations.
 Obtain reconciliation of A/R Aged Report to the G/L. Clerically test
reconciliation and review supporting documentation for significant or
unusual reconciling items. SCOPE: >$X
 Sum total credit balances. Propose re-class if above scope.
 Sum total amounts due from related parties for elimination in
consolidation.

Evaluation of the Adequacy of the Allowance For Doubtful Accounts

 Evaluate the following items and their impact on our review of the
adequacy of the allowance for doubtful accounts. Document in a
memorandum your findings related to:
– Changes in the client's credit and collection policies that have occurred
during the audit period, including changes that have since been
reversed or modified
– Impact of new products or new markets and whether they involve a
different, higher-risk customer
– General economic conditions and trends adversely affecting the
client's customers
 Have the client prepare an analysis (roll forward) of the allowance for
doubtful accounts for the current audit period. Verify the clerical accuracy
of the analysis and test it as follows:
– Cross-reference the provision for the current period to the appropriate
expense lead schedule.
– Compare the provision, write-offs, recoveries and the ending balance
for the current period with the comparable amounts for the preceding
audit period. Investigate significant or unusual fluctuations.
 Test write-offs during the current period as follows:
– Review the listing of accounts written off and reconcile the totals with
the amounts charged to the allowance for doubtful accounts.
– Determine whether proper approvals were obtained for selected write-
offs.
 Have the client prepare a listing of individual large and/or past due

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Time Project Work Step Initial Index
receivables for specific review of their probable collectability. SCOPE: >
$X & X days and all other balances > $X
– Relate the totals of individual receivables listed to the client's aging of
receivables. Ensure that significant past due receivables are not
omitted from the listing.
– Trace subsequent cash receipts to the cash records and examine
remittance advices.
– Discuss the accounts with informed client personnel to obtain
additional background information.
– Identify a range of specific allowances required for the total individual
receivables reviewed.
 Based upon the review of the aging and historical write-off statistics,
identify a range of general allowances required for receivables not
specifically reviewed above.
 Summarize the results of the specific and general review of the
collectability of receivables and determine an acceptable range of
adequacy of the allowance for doubtful accounts. Adjust the identified
range for other factors identified above that influence the collectability of
receivables.
 Compare the balance of the allowance for doubtful accounts as of the
balance sheet date with the acceptable range determined above. Propose
an adjustment, as appropriate, to ensure that the allowance falls within
the acceptable range.

Receivables From Related Parties

 Identify receivables from officers, directors and principal shareholders and
determine whether they arise from routine transactions, such as regularly
settled travel advances, or are related-party transactions.
 Consider the collectability of receivables from officers, directors, principal
shareholders and other related parties during the review of the adequacy
of the allowance for doubtful accounts.
 Consider the need to disclose the transactions and balances. Propose
disclosure points, as appropriate. Determine proper classification.
Prepare confirmations if applicable.

Prepaids and Other Assets

General
 Review balances for reasonableness and obtain explanations for any
significant variations between periods.
 Vouch individual amounts greater than $X.
 Conclude on appropriate objectives for prepaids and other asset
accounts.

Fixed Assets
Tests of Existence
 Tour the client's plant facilities and observe the type and condition of
property in place. Note any excess, unusable or idle facilities.
 Obtain an understanding of the client's policies, procedures and controls
for performing physical inventories of property (e.g., frequency or criteria

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Time Project Work Step Initial Index
for determining the need for a physical inventory).

Tests of Fixed Asset Additions

 Discuss with appropriate client personnel the approval process as it
relates to additions to property.
 Obtain fixed asset register from corporate. Clerically test. Trace beginning
balances to the working papers for the prior period and tie ending
balances to the G/L control accounts.
 Review detail of property additions and retirements during the period at
each individual location. Note that the descriptions indicated for property
additions appear to describe items that are properly capitalizable under
the client's accounting policies and relate to the client's business.
 Vouch and/or observe additions at individual locations and note approval
by the appropriate levels of authority. SCOPE: All additions > $X.
 Determine that the total cost of any plant and equipment purchased on an
installment plan or held under capital lease agreements is reflected in the
asset accounts and that the unpaid obligations are accrued as liabilities.
 Determine whether old equipment traded in or replaced by the new units
has been removed from the accounts.
 Inquire of appropriate client personnel as to the existence of significant
commitments for the purchase of property items as of the balance sheet
date. Consider the need to disclose such commitments in the financial
statements.

Accounts Payable (A/P)

Analytical Procedures
 Compare the balance of each significant A/P account with the comparable
balance for the preceding period. Consider the reasonableness of
differences in light of changes in the level of operations.
 Obtain the A/P Detail report as of (Date). Note that the report must be run
as of that date as the system cannot go back in time. Clerically test the
A/P Aged Report.
 Scan the report for large/unusual balances or amounts (e.g., negative
balances, round amounts, amounts due to related parties, etc.).
Investigate and examine supporting documentation, as appropriate.
 Obtain reconciliation of A/P Aged Report to the G/L. Clerically test
reconciliation and review supporting documentation for significant or
unusual reconciling items. SCOPE: $X
 Sum total negative balances. Propose re-class if above scope.
 Sum total amounts due from related parties for elimination in
consolidation.

Accrued Liabilities
Analytical Procedures
 Compare the balance of each significant accrued liabilities account with
the comparable balance for the preceding period. Investigate significant
or unusual fluctuations.

Detail Tests of Accrued Fringe Benefits

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Time Project Work Step Initial Index
 Obtain an understanding of the client's vacation and holiday pay policies.
Review written policies and discuss with management compliance with
the policies.
 Test calculation of accruals for vacation and holiday pay. Ensure
completeness of accrual through review of the payroll register. Compare
with similar calculations for the preceding period. Investigate significant
differences.

Suspense and Clearing Accounts

 Review suspense account and clearing account G/L balances for
reasonableness and obtain explanations for any significant variations
between periods.
 Vouch individual amounts greater than $X.
 Conclude on appropriate objectives for suspense and clearing asset
accounts.