3.

1 REVENUE AND
EXPENDITURE COMPONENTS
COMPONENTS OF THE EXPENDITURE

PURCHASE
ACCOUNTS PAYABLE
CASH PAYMENTS
COMPONENTS OF THE REVENUE CYCLE

SALES
ACCOUNTS RECEIVABLE
CASH RECEIPTS
3.1.1 PURPOSE
MEASURED AT THEIR FAIR VALUE OF THE CONSIDERATION RECEIVED AND
RECEIVABLE.
ENSURE VOLUNTARY COMPLIANCE BETWEEN ALL DOCUMENTATIONS,
CONTROL, POLICIES AND GUIDELINES.
TEST CONTROL FOR DETECTION SIGNIFICANT WEAKNESSES AND CHECK
FINANCIAL STATEMENTS.
3.1.2 EVIDENCE
Evidence Selection
a)Sales Of Goods And Services
b)Payments Received For Goods And Services
c)Good Returned By Claims Received From Customers
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 Shipments Or Services Performed.
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 Receipts, Discounts And Allowances
.
C) GOOD RETURNED BY CLAIMS RECEIVED
FROM CUSTOMERS
Receiving And Accepting Goods And Claims.
Preparing Receiving Reports.
Reviewing Claims.
Authorising Credits.
Preparing And Mailing Credit Memo.
Recording Returns And Claims.
 3.1.3 SUITABLE
Authorisation AUDIT OBJECTIVES
all are pre-approved by responsible personnel.
Completeness all valid transactions are included in the accounting records.
Accuracy that amounts relating to transactions and have been record correct amount
Validity all recorded transactions fairly represent and executed in accordance
Physical safeguards and security access to physical assets and information systems
controlled and restricted to authorized personnel

Error handling - errors detected at any stage of processing receive prompt corrective
action
Segregation of duties duties are assigned to individuals in a manner that no one
individual can control the recording function and the
procedures relative to transaction.
3.1.4 SUITABLE AUDIT TEST
Vouching
Verifications
Test Of Control
Substantive Test
Walk Through Test
Rotation Test
PURCHASES SYSTEM

OBJECTIVES
To ensure that there are proper internal controls over the purchases system.
To ensure that purchases are properly accounted for and recorded in the
correct accounting period.
Key control Audit procedures Audit assertions
features
Requisition 1. Ascertain system for requisition for Existence
purchases and services required. Occurrence
2. Check approvals for requisition of
purchases and services required.
Purchase orders 1. Check approvals for issue of purchase Existence
orders and the authorization limits. Occurrence
2. Check purchase orders to requisition
forms.
3. Vouch to quotations from suppliers.
4. Obtain list of normal suppliers, where
available
5. Check terms and conditions of
purchases.
Goods Inwards and 1. Check goods received notes to purchase Occurrence
Return of Goods orders and copy of suppliers delivery notes. Measurement
2. Ensure indication of check for quantity and Completenes
quality of goods received. s
3. Check that goods returned to suppliers are Valuation
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.
Invoices and Credit 1. Match suppliers invoices to purchase orders Rights/
Notes from suppliers and goods received notes. Obligations
2. Ensure invoices are cross-referenced to Measurement
purchase orders 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 f goods.
Payments 1. Ensure all supporting documents Existence
are attached and checked for Occurrence
arithmetical
2. Ensure proper approvals are
given
3. Check that discounts or credits
given have been received and
netted off against the payments.
Reconciliation of 1. Ensure suppliers statements are Completeness
statements reconciled regularly
2. Review reconciliation and ensure
long outstanding items are
resolved
Posting to ledgers 1. Check posting to inventory, Measurement
creditors subsidiary and general Completeness
ledger accounts
2. Check reconciliation of creditors
AUDIT EVIDENCE AND AUDIT TEST FOR PURCHASE

Audit evidence Audit test

Documentation requisition Substantive tests
order
- purchasing
order
- invoices
Analytical review procedure Analytical procedures
Mathematical evidence Compliance test
SALES SYSTEM

OBJECTIVES
To ensure that there are proper internal controls over the sales system.
To ensure that sales a properly accounted for end recorded in correct
accounting period.
 KEY AUDIT PROCEDURES AUDIT
CONTROL ASSERTION
FEATURES S
Acceptance of 1. Ascertain the manner order are taken,
orders whether orally , in written form of
electronically Existence
2. Check to documentation for orders. occurrence
3. Check for approvals for acceptance of
orders.
4. Ascertain follow up action taken for
unfulfilled orders.
Goods 1. Check allocation of inventories based on
outwards and approved orders.
return of 2. Ensure proper approvals obtained for Occurrence
goods dispatch of goods.
3. Ensure proper recording of inventory
movements.
Invoicing 1. Ascertain invoicing system.
2. Ensure invoices are referenced to orders and delivery Completeness
notes. Measurement
3. Check pricing and ensure terms of sales are in Valuation
accordance with companys policies.
4. Ascertain reasons for cancellation of sales invoices.
5. Check calculations.
Credit notes 1. Ensure proper authorization for issue of credits notes. Existence
2. Verify reasons for issuance. Occurrence
3. Vouch to supporting documents for return of goods,
discounts given, adjustment in pricing, etc.
Credit 1. Ascertain system of credit control in force . Existence
control 2. Ascertain companys approved credit limit and Occurrence
periods.
3. Check subsequence payment from customers.
4. Review credit control report.
5. Identify doubtful debt cases and ascertain actions
taken by management.
6. Review correspondences with customers and
lawyers.
AUDIT EVIDENCE AND AUDIT TEST FOR SALES

Audit evidence Audit test

Documentation Debit note Tests of controls
- Credit note
- Invoice
- Receipts
Confirmation Test of details of balances
Re- performance / Substantive test
Recalculation
RECEIPTS SYSTEM

OBEJECTIVES
To ensure that there are proper internal controls over the receipts system.
To ensure that receipts are properly accounted for, banked intact ad recorded in
the correct accounting period.
Key controls Audit procedures Audit
features assertions
Issue of 1. Ensure official receipts are issued in Existence
Official numerical sequence. Occurrence
Receipts 2. Check acknowledgement of receipts by
person issuing the official receipts.
Collections 1. Ensure cash collections are in safe custody. Existence
2. Ensure cheque collections are properly Occurrence
accounted for
Documentation 1. Vouch to sales invoices and other relevant Rights/
supporting documents for receipts. Obligations
Occurrence

Banking 1. Check to bank-in sips to ensure that Occurrence

collections are bank-in promptly and intact Completeness
2. Cheque receipts to cash book and bank
statements
Reconciliatio 1. Examine bank reconciliation statements and Completeness
n ensure outstanding items are subsequently
cleared.
2. Ensure that bank reconciliation are reviewed
by a responsible official regularly

Posting 1. Trace transactions to cash book and bank Measurement

statements Completeness
2. Check posting to cash book, debtors
subsidiary ledgers and general ledgers
PAYMENTS SYSTEM

OBJECTIVES
To ensure that there are proper internal controls over the payments system.
To ensure that payments are for valid transactions and are properly accounted
for and recorded in the correct accounting period.
Key controls Audit procedures Audit
features assertions
Issue of payment 1. Ensure payment vouchers are issued in Existence
vouchers numerical sequence Occurrence
2. Ensure proper allocation of expenses to Measurement
accounts
3. Ensure indication of check by person
issuing the payment vouchers
4. Ensure all cheques are crossed A/C
Payee Only

Documentation 1. Ascertain limits of authorization for Existence

and approvals payments and for cheque signatories Occurrence
2. Ensure that there are proper approvals for Rights/
payments made. Obligations
3. Vouch to relevant supporting documents
for payments and ensure that they are
Reconciliatio 1. Examine bank reconciliation statements Completeness
n and ensure outstanding items are
subsequently cleared.

Posting 1. Trace transactions to cash book and bank Measurement

statements Completeness
2. Check posting to cash book, creditors
subsidiary ledgers and general ledgers
PAYROLLS SYSTEM

OBJECTIVES
To ensure that there are proper internal controls over the payroll system
To ensure that payroll are properly computed and are for bona fide employees
Key control Audit procedures Audit
features assertions
Company policy 1. Ascertain companys policy on employment and
other terms of remuneration
Segregation of 1. Ensure that there is proper segregation of duties
duties for payroll between preparation and checking of
the particulars
2. Ensure that there is rotation of duties
Preparation of 1. Check to personnel records to ensure that Existence
payroll employees are bona fide Occurrence
2. Ensure that there is proper written authorization for Rights/
promotions and increments Obligations
3. Check that proper rates are being used for Measuremen
overtime calculation t
4. Check completion of payroll and that appropriate
deductions have been made
5. Check casting of payroll
6. Ensure indications of check of payroll on the
Payment 1. Check procedure for payment of salaries, Existence
by cash, cheque or direct credit to bank Occurrence
accounts of staff Rights/
2. Ensure that subsequent payments to the Obligations
relevant authorities eg. EPF, SOCSO, Measurement
IRB are made on a timely basis
3. Attend payment of wages to workers,
where relevant, to ascertain existence
and control procedures
4. Ascertain procedure for unclaimed
salaries or wages
Reconciliation 1. Check reconciliation of 2 months salary Completeness
payments
posting 1. Check posting to the relevant accounts in Completeness
the general ledgers
3.2 CASH AND BANK
BALANCES EVIDENCE
3.2.1 PURPOSE

CONSIST OF CONFIRMATION OF BANK BALANCES AND OTHER MATTERS

FROM THE CLIENTS BANKERS AT THE PERIOD END.
STANDARD LETTERS ARE USED TO CONFIRM INFORMATION WITH THE BANK
WHERE THE CLIENT HAS DEALINGS.
3.2.2 EVIDENCE
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.
3.2.3 AUDIT OBJECTIVES AND ASSERTIONS
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 To ensure that the cash balance and related statement of
Disclosure comprehensive income entries are correctly disclosed in
the financial statements in accordance with legislation
and accounting standards.
 3.2.4 SUITABLE AUDIT TEST
TO BE USED WHEN AUDITING
 CASH BALANCES
AUDIT OBJECTIVES SUBSTANTIVE PROCEDURES
Occurrence, Agree balance on bank confirmation with bank reconciliation and cash
Completeness and book.
Valuation Trade deposits in transits, outstanding cheques and other reconciling
items to cut-off bank statements.
Accuracy Check calculation of bank reconciliation and agree with book balance on
cash book and general ledger.
Cut-off For cash receipts, observe cash count for the last day of the year end and
trace deposits to cash receipts journal and cut-off bank statement.
For cash disbursement, record the last cheque issued at the year end
date and trace to cash payments in the cash book; and trace outstanding
cheques on bank reconciliation and investigate any cheque clearing after
a long delay.

Classification, Review board of directors minutes, bank letter, loan agreement or other
Presentation and documents for any restrictions on cash. Ensure bank loans and overdrafts
Disclosure are not off-set against positive bank balances in the financial statement.
 BANK BALANCES
a) Test the mathematical accuracy of the bank reconciliation and agree the balance in
the cash book.
b) Agree the bank balance on the bank reconciliation with the balance on bank
confirmation.
c) Trace the deposits in transit on the bank reconciliation to the cut-off bank statement
covering a week after the date on which the bank account is reconciled.
d) Agree any charges included on the bank statement to the bank reconciliation.
e) Agree the adjusted book balance on the cash account lead schedule.
f) Trace bank transfers for last week of financial year under review and first.
g) Identify irregular items and obtain necessary explanation.
3.2.5 SUITABLE AUDIT PROCEDURES
AUDIT SUBSTANTIVE PROCEDURES
OBJECTIVES
Occurrence / Select samples of cash receipts from cash book and trace
Existence to remittance advices, pay-in slips, and bank statement.
Select samples of cash payments from cash book and trace
to payment vouchers (with supporting documents) and bank
statements.
Scan through the entries and trace all the unusual items,
like contra items, stopped payment items and cancelled
cheques, to support documents and authorization.
Completeness Trace a sample of remittance advices and pay-in slip to
cash receipt journal.
Trace a sample of payment vouchers (with supporting
documents) to cash book.
Valuation Compare a sample of remittance advices
with amount in cash receipts recorded in the
cash book.
Compare a sample of (cancelled) cheques
with amounts in cash recorded in the cash
book.
Cut-off Compare the dates for recording a sample of
cash transactions with the dates of cash
deposited in bank or cheques sent.
Classification Examine a sample of cash receipts and
payments transactions for proper
classification.
BANK RECONCILIATION
OBJECTIVES
- TO ENSURE THAT BANK RECONCILIATIONS ARE PREPARED ON A REGULAR
BASIS AND ARE PROPERLY REVIEWED
- TO ENSURE THAT OUTSTANDING ITEMS ARE PROMPTLY CLEARED
 SUITABLE AUDIT PROCEDURES
Key control features Audit procedures Audit Assertions
Regular preparation 1. Obtain monthly bank reconciliation Completeness
statements
2. Check balances to cash book and
bank statements
Follow up 1. Ensure outstanding items are Existence
subsequently cleared Occurrence
2. Ensure items in the bank statement Rights/ obligations
but not in the cash book are Completeness
subsequently taken up and vice valuation
versa
3. Confirm balances with banks
4. Ascertain any overdraft facilities and
securities, where relevant
CASH IN HAND

OBJECTIVES
- TO ENSURE THAT CASH HELD IN HAND ARE PROPERLY ACCOUNTED FOR
- TO ENSURE THAT CASH COLLECTED IS PROMPTLY BANKED AND INTACT
 SUITABLE AUDIT PROCEDURES
Key control Audit procedures Audit assertions
features
Companys 1.Ascertain companys policy for the
policy handling of physical cash
Petty cash 1.Ascertain whether petty cash is Existence
maintained on an imprest system Occurrence
2. Check that proper supporting Rights/obligations
documents are attached for petty cash measurement
payments
3. Ensure that there are proper approvals
4. Check limits of reimbursement for
petty cash
5. Ensure petty cash payment vouchers
are properly stamped PAID after
reimbursement
Cash collections 1. Ascertain basis of cash held for Existence
operations purposes Occurrence
2. Ensure that collections are banked- Rights/
in promptly and intact obligations
3. Ensure that cash held overnight are valuation
kept in safe custody
4. Obtain confirmation of cash held as
at year end

posting 1. Check posting to petty cash and completeness

accounts in the general ledgers