Practice Monitoring Programme

1.  Audit Documentation & Audit Evidence                                          

Overview

Applicable auditing standards:

• SSA230 - Audit Documentation
• SSA500 - Audit Evidence

Documentation guidance:

• ICPAS Audit Manual for Small Companies

Case Notes

PMP observation

1.  At planning stage:

1. No planning documentation was available
2. No materiality was set, or overall materiality not set.
3. Comparative columns of financial numbers for two periods were prepared but no preliminary analytical review was documented on which are the potential risk areas.

2.  During the audit:

1. No sample design was performed
2. work performed was less than sample size calculated.
3. exceptions noted during the audit were not properly addressed (e.g., NRV test)
4. errors noted during audit were taken as being the only errors for the population from which the samples were selected from.

3.  On completion

1. Comparative columns of financial numbers for two periods were prepared but no final analytical review was documented on whether the information obtained during the audit is consistent with the overall financial numbers
2. issues noted during audit were not addressed or concluded.

Audit Implication

Audit documentation serves a number of purposes (SSA230R.5), including:

1. Assisting the audit team to plan and perform the audit;
2. assisting members of the audit team responsible for supervision to direct and supervise the audit work, and to discharge their review responsibilities in accordance with SSA 220 (Revised), "Quality Control for Audits of Historical Financial Information;"
3. Enabling the audit team to be accountable for its work;
4. Retaining a record of matters of continuing significance to future audits;
5. Enabling an experienced auditor to conduct quality control reviews and inspections in accordance with SSQC, "Quality Control for Firms that Perform Audits and Reviews of Historical Financial Information, and Other Assurance and Related Services Engagements;" and
6. Enabling an experienced auditor to conduct external inspections in accordance with applicable legal, regulatory or other requirements.

The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion. (SSA500.2)

Audit evidence that is generated internally is more reliable when the related controls imposed by the entity are effective (i.e. Internal controls need to be tested and concluded as effective). (SSA500.9)

The matter of difficulty or expense involved is not in itself a valid basis for omitting an audit procedure for which there is no alternative. (SSA500.13)

Learning Points

The auditor should prepare, on a timely basic, audit documentation that provides:

1. A sufficient and appropriate record of the basis for the auditor's report; and
2. Evidence that the audit was performed in accordance with SSAs and applicable legal and regulatory requirements. (SSA230R.2)

Audit documentation may be recorded on paper or on electronic or other media.  It includes, for example, audit programs, analyses, issues memoranda, summaries of significant matters, letters of confirmation and representation, checklists, and correspondence (including email) concerning significant matters.

Abstracts or copies of the entity's records, for example, significant and specific contracts and agreements, may be include as part of audit documentation if considered appropriate.  Audit documentation, however, is not a substitute for the entity's accounting records.  The audit documentation for a specific audit engagement is assembled in an audit file. (SSA230R.7) 

(SSA500.8) states that:

• A given set of audit procedures may provide audit evidence that is relevant to certain assertions, but not others.  i.e. Performing an analytical review may provide some audit evidence on certain assertions (e.g. Completeness), but not other assertions (such as cutoff, etc.)
• For example, inspection of records and documents related to the collection of receivables after the period end may provide audit evidence regarding both existence and valuation, although not necessarily the appropriateness of period-end cutoffs. 
• On the other hand, the auditor often obtains audit evidence from different sources or of a different nature that is relevant to the same assertion. 

2.  Overview of Audit Planning & Risk Assessment

Overview

Applicable auditing standards:

• SSA200 - Objective and General Principles Governing An Audit of Financial Statements
• SSA220 - Quality Control for Audits of Historical Financial Information
• SSA300 - Planning An audit Of Financial Statements
• SSA315 - Understanding the entity and its environment and assessing the risks of material misstatement

Documentation guidance:

• ICPAS audit manual for small companies (Guidance notes 2, 3.4, 5.2, 6 and the various forms under section C)

Case Notes

PMP observation

• There was no documentation of the assessment of the risk of susceptibility of the entity's financial statements to material misstatement due to error or fraud.
• There was also no documentation of the assessment of risk of material misstatement due to fraud related to revenue recognition.
• There was no documentation of the engagement team discussion on the risk of susceptibility of the entity's financial statements to material misstatement due to error or fraud.
• No engagement letters were issued.

Audit Implication

Inadequate audit planning (or documentation of the planning) could result in inefficient and/or ineffective audits.

Learning Points

The auditor should develop an audit plan for the audit in order to reduce audit risk to an acceptably low level.  (SSA300.13)

The auditor should document the key planning procedures required under the standard.  (SSA230R.5)

In audits of small entities, the entire audit may be conducted by a very small audit team.  Many audits of small entities involve the audit engagement partner (who may be a sole practitioner) working with one engagement team member (or without any engagement team members).

With a  smaller team, co-ordination and communication between team members are easier.  Establishing the overall audit strategy for the audit of a small entity need not be a complex or time-consuming exercise; it varies according to the size of the entity and the complexity of the audit.  (SSA300.12)

For example, a brief memorandum prepared at the completion of the previous audit, based on a review of the working papers and highlighting issues identified in the audit just completed, updated and changed in the current period based on discussions with the owner-manger, can serve as the basis for planning the current audit engagement. (SSA300.12)

3.  Concept of Materiality

Overview

Applicable auditing standards:

• SSA320 - Audit Materiality

Documentation guidance:

• ICPAS Audit manual for small companies (Guidance notes 7 and form C8)

Question

In your opinion, for each of the companies above, what should be the materiality for the audit?

Case Notes

PMP observation

1.  Different materiality levels were set for balance sheet and profit and loss accounts as follows:

2.  No materiality was determined for the audit

Audit Implication

While the assessment of what is material is a matter of professional judgment (SSA320.4), the standard requires:

1.  The auditor to consider materiality at both the overall financial statement level and in relation to classes of transactions, account balances, and disclosures (SSA320.7); and that

2.  Materiality should be considered by the auditor when:

1. Determining the nature, timing and extent of audit procedures; and
2. Evaluating the effect of misstatements.  (SSA320.8)

Learning Points

(SSA320.9) states that:

• When planning the audit, the auditor considers what would make the financial statements materially misstated. 
• The auditor's understanding of the entity and its environment establishes a frame of reference within which the auditor plans the audit and exercises professional judgment about assessing the risks of material misstatement  of the financial statements and responding to those risks throughout the audit.
• It also assists the auditor to establish materiality and in evaluating whether the judgment about materiality remains appropriate as the audit progresses. 
• The auditor's assessment of materiality, related to classes of transactions, account balances, and disclosures helps the auditor decide such questions as what items to examine and whether to use sampling and substantive analytical procedures. 
• This enables the auditor to select audit procedures that, in combination, can be expected to reduce audit risk to an acceptably low level.

An overall materiality enables the partner in evaluating whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.  (SSA200.26)

4.  Analytical Procedures

Overview

Applicable auditing standards:

• SSA520 - Analytical Procedures

Documentation guidance:

• ICPAS Audit manual for small companies (Guidance notes 8 and form C7)

Case Notes

PMP observation

Analytical review figures were tabulated between periods, but there were no documentation of analysis being performed.  (e.g., No ratios being calculated, no explanations for significant variances, etc.)

Audit Implicaiton

• At the planning stage: The auditor should apply analytical procedures as risk assessment procedures to obtain an understanding of the entity and its environment (SSA520.8)
• Analytical review, performed as a overall review at the end of the audit, will enable the auditor to determine whether the financial statements as a whole are consistent with the auditor's understanding of the entity (SSA520.13)

Learning Points

The auditor should apply analytical procedures as risk assessment procedures to obtain an understanding of the entity and its environment.  Application of analytical procedures may indicate aspects of the entity of which the auditor was unaware and will assist in assessing the risks of material misstatement in order to determine the nature, timing and extent of further audit procedures.  (SSA520.8)

Analytical procedures applied as risk assessment procedures use both financial and non-financial information, for example, the relationship between sales and square footage of selling space or volume of goods sold.  (SSA520.9)

The conclusions drawn from the results of analytical review at the end of the audit are intended to corroborate conclusions formed during the audit of individual components or elements of the financial statements and assist in arriving at the overall conclusion as to the reasonableness of the financial statements.  (SSA520.13)

When analytical procedures identify significant fluctuations or relationships that are inconsistent with other relevant information or that deviate from predicted amounts, the auditor should investigate and obtain adequate explanations and appropriate corroborative audit evidence.  (SSA520.17)

5.  Audit Sampling

Overview

Applicable auditing standards:

• SSA530 - Audit Sampling and Other means of testing

Documentation guidance:

• ICPAS Audit manual for small companies (Guidance notes 9 and respective forms ssb and Rop01)

Case notes

PMP observation

1. Sample size determined for sales test was 50 samples, however, work was performed for only 12 samples.  The reason for performing less audit work then initially planned was not documented.
2. Purchase testing work were performed on 9 purchase items, representing 23% of total purchases.  There were no documentation on how 9 purchase samples were deemed to be adequate representative of the population.
3. Source documents for testing sales cutoff was sales invoices without verification to evidence of customer's acknowledgement of delivery date.
4. 6 out of 15 stock items selected for NRV testing were sold below the cost recorded.  There were no conclusion on why NRV was still deemed to be effective.

Audit Implication

The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion.  (SSA500.2)

Learning Points

The auditor should perform audit procedures appropriate to the particular audit objective on each item selected. (SSA530.44)

The aggregate of uncorrected misstatements comprises:

(a)     Specific misstatements identified by the auditor including the net effect of uncorrected misstatements identified during the audit of previous periods; and

(b)     The auditor's best estimate of other misstatements which cannot be specifically identified (i.e. projected errors). (SSA320.13).

The auditor needs to consider whether the aggregate of uncorrected misstatements is material.  If the auditor concludes that the misstatements may be material, the auditor needs to consider reducing audit risk by extending audit procedures or requesting managemen to adjust the financial statements for the misstatements identified.  (SSA320.14)

If the aggregate of the uncorrected misstatements that the auditor has identified approaches the materiality level, the auditor would consider whether it is likely that undetected misstatements, when taken with aggrefate uncorrected misstatements could exceed materiality level.  Thus, as aggregate uncorrected misstatements approach the materiality level the auditor would consider reducing audit risk by performing additional audit procedures or by requesting management to adjust the financial statements for identified misstatements.  (SSA320.16)

If management refuses to adjust the financial statements and the results of extended audit procedures do not enable the auditor to conclude that the aggregate of uncorrected misstatements is not material, the auditor should consider the appropriate modification to the auditor's report in accordance with SSA700 "The Auditor's Report on Financial Statements" (SSA320.15)

If the auditor has identified a material misstatement resulting from error, the auditor should communicate the misstatement to the appropriate level of management on a timely basis, and consider the need to report it to those charged with governance in accordance with SSA 260 "Communication of Audit Matters to Those Charged with Governance".  (SSA320.17)

6.  The Effects of Changes in Foreign Exchange Rates

Overview

• Assessment of functional currency
• Translation of monetary and non-monetary foreign currencies denominated assets
• FRS21 - The effects of changes in foreign exchange rates

Case Notes

PMP observation

There were no documentation on the assessment of the appropriateness of the choice of the functional currency by the entity.  This documentation is important particularly when the entity transacts significantly in foreign currencies.

Inventory list was maintained in various source currencies and was converted to the S$ functional currency using the year-end exchange rate.

Audit Implication

The determination of the appropriate functional currency affects the measurement and recording of all transactions.

Non-monetary foreign currency items should be translated at exchange rates at the date of the transaction.  (FRS21.23)

Learning Points

An entity's functional currency reflects the underlying transactions, events and conditions that are relevant to it.  Accordingly, once determined, the functional currency is not changed unless there is a change in those underlying transactions, events and conditions.  (FRS21.13)

7.  Property, Plant and Equipment (FRS 16)

Overview

1.  Assertions

• Existence
• Rights and Obligations
• Presentation
• Valuation

2.  Audit Manual for Small Companies:

• Property, Plant & Equipment: Reference F

Case Study 1

Facts of the case

• Property, plant and equipment balance at year end was S$1,241,410 representing 9% of total assets.

PMP Observations

• No work done to verify the ownership and existence of the PPE.
• Absence of disclosure of the gross carrying amount and the accumulated depreciation at the beginning and end of the comparative period; and additions and disposals of PPE during the comparative period.

Audit Implications

• Incomplete audit procedures performed for PPE may not appropriately address the assertions of PPE.
• SSA230.2 requires the auditor to document matters which are important in providing evidence to support the audit opinion.
• SSA230.5 requires that the auditor to prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit.
• SSA500.2 requires the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion.
• Incomplete disclosure as required by FRS 16.

Learning Points

1.  Auditors to document the existence of PPE in accordance with SSA 230 even if the PPE had been mortgaged for financial instituion.

2.  FRS 16.73: The financial statements shall disclose, for each class of PPE

• FRS 16.73(d): the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment   losses) at the beginning and end of the period; and
• FRS 16.73(e): a reconciliation of the carrying amount at the beginning and end of the period showing:

3.  Practitioners should remember to document the work done on the following areas.  If these are not material and no other further work will be performed, this consideration be documented.

• Depreciation
• Additions/disposals
• Review of useful lives
• Review of residual values

Case Study 2

Facts of the case

Private exempt company trading in garments and related products

Company in net current liabilities position of S$40,666.

Total assets $966,800.

PPE balance at year end was S$464,950 (48% of total assets)

Loss before tax $462.

Question

What are of the things that the auditor may look at to determine if there are indicators of impairment for PPE?

PMO Observation

No work was performed to assess PPE for indicator of impairment.

Where there was indicator of impairment, there was inadequate work to assess the recoverable amount of the asset.

Audit Implications

Assertion of valuation for PPE not addressed.

Learning Points

• FRS 36.9 states that an entity shall assess at the end of each reporting period whether there is any indication that an asset may be impaired.  If any such indication exists, the entity shall estimate the recoverable amount of the asset.  In the event that no such indication exists, audit work performed or considerations made by the auditors should still be documented in accordance with SSA230.
• Estimation of recoverable amount may include using discounted cash flow prepared for that class of assets; valuation performed by specialists or open market prices.

8.  Investments

Overview

1.  Assertions

• Existence
• Rights and Obligations
• Valuation

2.  Audit Manual for Small Companies:

• Investment in Group and Associated Undertakings: Reference G
• Other Investments and Derivatives: Reference H

Case Study 1

Facts of the case

• Other investment balance at year end was S$176,192.

PMP Observation

• No work performed to verify ownership and the percentage of ownership of the other investment balance.
• No work performed to assess the fair value of the investment at year end.
• No documentation in respect of the above.

Audit Implication

• SSA230.2 requires the auditor to document matters which are important in providing evidence to support the audit opinion.
• SSA230.5 requires that the auditor to prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit.
• SSA500.2 requires the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion.

Learning Points

• Verification of ownership should be performed by sighting to the original share certificates and re-computing the percentage of ownership.  Perusal of the company's minute files could be performed to determine if there are any matters relating to investments.
• FRS 36.9 states that an entity shall assess at the end of each reporting period whether there is any indication that an asset may be impaired.  If any such indication exists, the entity shall estimate the recoverable amount of the asset.  In the event that no such indication exists, audit work performed or considerations made by the auditors should still be documented in accordance with SSA230.
• Estimation of recoverable amount may include using discounted cash flow prepared for that class of assets; valuation performed by specialists or open market prices.
• FRS 107.25 states that for each class of financial assets and financial liabilities (see paragraph 6), an entity shall disclose the fair value of that class of assets and liabilities in a way that permits it to be compared with its carrying amount.
• FRS 107.27 states that an entity shall disclose:

(a)        the methods and, when a valuation technique is used, the assumptions applied in determining fair values

(b)        whether fair values are determined, in whole or in part, directly by reference to published price quotations in an active market or are estimated using a valuation technique (see paragraphs AG71–AG79 of FRS 39).

(c)        whether the fair values recognised or disclosed in the financial statements are determined in whole or in part using a valuation technique based on assumptions that are not supported by prices from observable current market transactions in the same instrument (i.e. without modification or repackaging) and not based on available observable market data. 

Case Study 2

Facts of the case

• Company in business of trading as wholesalers of liquors and tea leaves.
• Other investment balance at year end was S$689,594, of which S$521,694 relates to quotes investment.
• Represents 22% and 17% of total assets respectively.

PMP Observation

Quoted investment was checked to CDP statement, fair value ("FV") change taken to FV reserves.

Audit Implication

• SSA230.2 requires the auditor to document matters which are important in providing evidence to support the audit opinion.
• SSA230.5 requires that the auditor to prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit.
• SSA500.2 requires the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion.

Learning Points

Classification of financial assets should be performed in accordance with FRS 39.  FRS 39.9 lists out the different classification categories that are possible for different financial assets as follows:

• Fair value through profit and loss;
• Loans and receivables;
• Held-to-maturity; and
• Available-for-sale.

Case Study 3

Facts of the case

Company in business of being computer consultants and dealers in computer hardware and accessories.

Total assets at year end was S$3,306,337

Investment in associated company was S$56,800, representing 2% of total assets.

Results of associate was S$86,436.

Materiality was S$63,337

Question

How do you account for an investment in associate?

PMP Observation

Investment in associated company not accounted for using the equity method.

Audit Implication

Not in compliance with FRS 28.

Learning Points

FRS 28.13 states that an investment in associate should be equity accounted for using the equity method except when exempted by the conditions listed in FRS 28.13 (a), (b) or (c).

FRS28.24: The most recent available financial statements of the associate are used by the investor in applying the equity method.  When the end of the reporting period of the investor is different from that of the associate, the associate prepares, for the use of the investor, financial statements as of the same date as the financial statements of the investor unless it is impracticable to do so.

FRS 28.25: when, in accordance with paragraph 24, the financial statements of an associate used in applying the equity method are prepared as of a different reporting date from that of the investor:

• adjustments shall be made for the effects of significant transactions or events that occur between that date and the date of the investor’s financial statements. 
• In any case, the difference between the end of the reporting period of the associate and that of the investor shall be no more than three months.  The length of the reporting periods and any difference between the ends of the  reporting periods shall be the same from period to period.

The investor’s financial statements shall be prepared using uniform accounting policies for like transactions and events in similar circumstances.

FRS 28.37 lists out the required disclosures.

9.  Inventories

Overview

1. Physical inventory counting

• Assertions - ownership, existence and completeness
• SSA501 Audit Evidence - Additional Considerations for Specific Items
• AGS 4 - Existing and Valuation of Inventories in the Context of the Historical Cost System

Case Study 1

Facts of the case

• Inventories balance at financial year end (31 December 2007) was S$844,485, representing 85% of current assets and 66% of total assets.
• Inventories comprised tyres, rims, spares and consumables.
• Materiality was set at S$75,000.
• Inventories were kept in the following locations:

Question: Which locations to select for attendance are appropriate?

Selection made by Public Accountant (PA)

Locations B, E and F (indicated with "*") were selected for attendance.

PMP observation

There was no documentation of the basis of selection.

Common responses

• PA covered 3 out of 6 locations, deemed sufficient coverage.
• Some locations were not selected due to non-availability of staff.

Audit implication

Inappropriate selection of locations may not appropriately address the risk of material misstatement at different locations.

Learning points

• Selection of locations should take into account the materiality of the inventory and the risk of material misstatement at different locations. (SSA 501.11)
• Where attendance is impracticable, consider alternative procedures. (SSA501.7)
• Document basis/rationale etc.

Additional fact

PA was appointed as auditors on 24 March 2008.

PMP observations

There was no third party confirmation obtained.

Common responses

In view of the fact that it is a third party warehouse, there is no doubt on the quantities of the inventories maintained as management would be the first one to make noise if there are stock quantities discrepancies.

Audit implication

No appropriate audit evidence obtained to address the risk of material misstatement at third party warehouse.

Learning points

• Where there are material inventories under the custody and control of a third party, obtain third party confirmation.  (SSA 501.18)
• Alternatively, if monthly third party statements are received and reconciled by the Company, PA can consider reviewing these documents to assess if discrepancies have been promptly followed up and resolved, particularly at year-end.

Additional Facts

Test counts were performed from count records to physical inventory only.  This addressed the existence assertion.

PMP observation

Test counts were not performed from physical inventory to count records to address completeness assertion.

Common responses

Checking of inventories from list to floor is considered adequate.

Audit implication

Completeness assertion was not addressed.

Learning point

Perform test count on selected sample of inventories items, both directions i.e.. from count records to physical inventory and from physical inventory to count records.  (SSA 501.13)

Additional Facts

Discrepancies between test counts and final stock listing were either documented as "missing items" or no explanations were provided.

PMP observation

There was no follow up to investigate the discrepancies and assess the implication on the stocks as a whole.

Common responses

The impact is immaterial.

Audit implication

Valuation assertion was not adequately addressed.

Learning point

• Investigate and document reasons for the discrepancies.
• Assess the potential impact (i.e. extrapolation to whole population).  (SSA 530.47)

Overview

2. Unit cost test

• Assertions - valuation
• FRS 2 - Inventories
• SSA 530 - Audit Sampling and Other Means of Testing

Case Study 2

Facts of the case

• Inventories balance at financial year end (31 December 2007) was S$5,252,888, representing 54% of current assets and 22% of total assets.
• Company is in business of manufacturing audio and visual equipment and inventories comprised raw materials, finished goods and work-in-progress.
• Materiality was set at S$309,000.

PMP observation

There was no unit cost test performed to ensure that inventories are stated at a first-in-first-out basis.

Common responses

• Unit cost  test not performed because purchases during the year have been checked.
• Unit cost test not performed because inventories have been sold with good margin during the year.

Audit implication

Valuation assertion for inventories at year end not addressed.

Learning points

• Unit cost test which include verification of material inventories items at year end to source documents such as suppliers invoices should be performed to ensure costing method is consistent with accounting policy.
• The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. (FRS 2.10)
• Document findings etc.

Additional fact

Discrepancies are noted in Item B, E and G, but there was no explanations provided.

PMP observations

There was no follow up to investigate the discrepancies and assess the implication on the stocks as a whole.

Common responses

• The impact is immaterial.
• Client represented that the different is due to exchange rates conversions, PA do not think it is necessary to perform further work.

Audit implication

Valuation assertion was not adequately addressed.

Learning points

• Investigate and document reasons for the discrepancies.
• Assess the potential impact (i.e. extrapolation to whole population).  (SSA 530.47)

Additional fact

There are no suppliers invoices (i.e. Client could not locate the supplier's invoices) for items C, F and H.

PMP observations

There was no replacement sample selected to complete the unit cost test.

Common responses

• Sample tested deemed adequate.

Audit implication

Valuation assertion was not adequately addressed.

Learning points

• If a selected item is not appropriate for the application of the audit procedure, the audit procedure is ordinarily performed on a replacement item.  (SSA 530.45)
• Sometimes however, the auditor is unable to apply the designed audit procedures to a selected item because, for instance, documentation relating to that item has been lost.  If suitable alternative audit procedures cannot be performed on that item, the auditor ordinarily considers that item to be in error.  (SSA 530.46)

Additional fact

Items I and J are inventories purchased from US suppliers (and billed in US$) in months of July and Aug 2007, respectively.  The average exchange rate ruling in July and Aug 2007 are 1.517 and 1.523 respectively.  These inventories are all converted at year end rate of 1.446.

PMP observations

Foreign currencies denominated non-monetary assets (i.e. inventories) are incorrectly converted at year end rate.

Common responses

• PA misunderstood that all foreign currencies assets and liabilities have to be converted at year end rate.
• The impact is immaterial.

Audit implication

Valuation assertion was not addressed.

Learning points

At each balance sheet date, non-monetary items that are measured in terms of historical coast in a foreign currency shall be translated using the exchange rate at the date of the transaction. (FRS 21.23b)

Additional fact

PMP observations

There was no work performed to assess the reasonableness of the labour and overheads allocation and the mark-up percentages applied to the various phases production.

Common responses

• Labour and overheads allocation are computed by client based on formulae established long time ago, it has been tested then and no changes since, so there is no need to verify the basis of allocation and mark-ups again.

Audit implication

Valuation assertion was not addressed.

Learning points

Allocation of labour costs and overheads needs to be verify to assess if allocation has been applied correctly, consistently and is reasonable.  Factors to consider include:

• Understanding the costing method used by client - Standard costing etc.
• How the basis of allocation of labour and overheads is arrived at - i.e. Unit-of-production, factory area occupied etc
• Has production efficiency / production variance been correctly accounted for - capitalized vs expensed off.

Overview

3. Net realisable value test

• Assertions - valuation
• FRS 2 - Inventories
• SSA 530 - Audit Sampling and Other Means of Testing

Case Study 3

Facts of the case

• Inventories balance at financial year end (31 December 2007) was S$2,435,870 representing 78% of current assets and 54% of total assets.
• Inventories comprised computer equipment and related accessories.
• Materiality was set at S$120,000.

PMP observation

There was no net realisable value test performed to ensure that inventories are stated at the lower of cost and net realisable value.

Common responses

• Net realisable value test not performed because inventories have been sold with good margin during the year..
• Directors represented that there is no issue with realisable value.

Audit implication

Valuation assertion for inventories at year end not addressed.

Learning points

• Inventories shall be measured at the lower of cost and net realisable value. (FRS 2.9)
• Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. (FRS 2.6)
• Inventories are usually written down to net realisable value item by item. (FRS 2.29)
• More guidance in paragraphs 28 to 33 of FRS 2.

Overview

4. Review of stock obsolescence allowance

• Assertions - valuation
• FRS 2 - Inventories

Case Study 3

Facts of the case (using same case study 3)

• Inventories balance at financial year end (31 December 2007) was S$2,435,870 representing 78% of current assets and 54% of total assets.
• Inventories comprised computer equipment and related accessories.
• Materiality was set at S$120,000.

PMP observation

There was no work done to assess the adequacy of stock obsolescence allowance.

Common responses

• No stock obsolescence allowance is necessary based on physical observation carried out during stock take.
• Client represented that all stocks are saleable.

Audit implication

Valuation assertion for inventories at year end not addressed.

Learning points

• Given that the nature of the inventories are computer equipments which are susceptible to technology obsolescence, mere physical observation during stock take is not sufficient to ensure that there is no stock obsolescence issue.
• Assess the need for stock obsolescence allowance by considering the nature of inventories, review ageing report, consider whether inventory levels are high in comparison to orders received and anticipated demand and any likely change in technology or market demands.
• Where there is no ageing report available, perform alternative procedures such as gross profit margin analysis, stock turnover analysis etc. to assess if there is evidence of stock obsolescence.
• Manufactured stock: Where a provision is made on a finished product consider whether any provision should be made against WIP and materials used in the process.  Product lines need to be examined individually.  Losses on one line cannot be set off against profits on another.

Additional Fact

• Client's policy for provision for stock obsolescence was to progressively mark-down the inventories by 5% for stocks more than 1 year, 2 years and more than 3 years.

PMP observation

There was no assessment of the appropriateness of provisioning policy or comparison against industry trends for reasonableness.

Common responses

• There is no reason to doubt client's policy because the client knows their business best.
• Client is very prudent and have already made an allowance for stock obsolescence, no further work needs to be performed.

Audit implication

Valuation assertion was not adequately addressed.

Learning points

Where the client determines the provision on the basis of a formula, consider whether:

• it is appropriate for the nature of business;
• it is consistent;
• it has been accurately applied;
• where the formula relies on the age of the stock, check to ensure that the ageing is accurate.

10.  Construction Contracts (FRS 11)

Overview

1. Assertions - Existence, Completeness, Recording, Valuation, Cut-off

2. SSA230 - Audit Documentation

3. Audit Manual for Small Companies:

    Construction: Reference I

Case Study 1

Facts of the case

• Inventories balance at financial year end was S$504,281 representing 10% of total assets.
• Construction Contracts ("CC") balance was S$307,158.
• Materiality was S$69,000.

PMP observation

No review of projected project revenue and project costs, and verification to independent quantity surveyors' certificates to ascertain the stages of completion of projects under construction.

Common responses

• work done was done, but not documented.
• Verification to independent quantity surveyors' certificate was not done.  The audit assistant was told to conduct such tests.

Audit implication

Incomplete audit procedures performed may not appropriately address the assertions of CC.

SSA 230.2 requires the auditor to document matters which are important in providing evidence to support the audit opinion.

SSA 230.5 requires that the auditor to prepare working papers which are sufficiently completer and detailed to provide an overall understanding of the audit.

Learning points

• To ascertain the stage of completion for uncompleted construction contracts, auditors should:

• Review project revenue; • Review project budgeted costs;  

• Verify to certification issued by independent quantity surveyors;        

• Re-compute percentage of completion.

• Progress billings should be supported by certification issued by independent quantity surveyors.

• All work done should be documented as required by SSA 230.

Case Study 2

Facts -of the case

• Company's total assets at year end was S$1,638,717.

• Construction contracts balance at year was S$143,422, relating to three projects that were uncompleted at year end.

• Materiality was S$50,000.

Question

• What are some of the activities that the auditor may perform for purposes of assessment for foreseeable loss.

PMP observations

• No work done for assessment of foreseeable losses. • No documentation of work done in respect of the above.

Common response

• Work was done but not documented (note: there was no documentation of the work done at the time of practice review)

Audit implication

 Assertion of valuation not adequately addressed.

Learning points

• Assessment for foreseeable loss may include:

• Discussion with project managers;

• Compare project revenue against actual costs incurred to-date;

• Compare project actual cost incurred, to-date against budgeted costs incurred to-date, taking into consideration the stage of completion;

• For uncompleted projects with actual cost incurred to-date in excess of project revenue, evaluate the foreseeable loss by also considering the company's estimated cost to complete;

• To consider the impact of any confirmed variable orders.

• All work done should be documented as required by SSA 230.

11.  Trade Receivables

Overview

1. Trade debtors circularisation

• Assertions - Rights and Obligations, Existence

• SSA505 - External Confirmations

• AGS 2 - Verification of Debtor Balances - Confirmation by Direct Communication

Case Study 1

Facts of the case

• Trade receivables balance at financial year end (31 December 2007) was S$1,972,197, representing 80% of current assets and 53% of total assets.

• Company is in the business of importers and exporters of and dealers in all kinds of oil and gas producing supplies, regulators, piping materials and such other goods.

• Materiality was set at S$64,000.

• 8 trade debtors amounting to 5$1,535,330 (78% of total trade debtors) were selected for circularisation, as follows:

 Question: What alternative procedures should be performed for non-repli to circularised request?

PMP observations

• There was no alternative procedures performed on the non-replies to circularised request.

• The alternative procedures performed on the non-replies to circularised request was limited to vouching to sales invoices without evidence of customer's acceptance of goods.

Common responses

•  Most of the trade debtors circularised have confirmed, deemed sufficient coverage.

• There was no subsequent receipts for the non-replies.

Audit implication

Incomplete audit procedures performed on trade debtors circularisation may not appropriately address the existence and ownership assertions.

Learning points

• Alternative procedures should be performed on 100% of the trade debtors selected for circularisation, concept of "sampling on sample" is not appropriate.

• The auditor should perform alternative audit procedures where no response is received to a positive external confirmation request. The alternative audit procedures should be such as to provide audit evidence about the assertions that the confirmation request was intended to provide. (SSA505.31)

•  Where the auditor is unable to obtain a response, the auditor uses alternative audit procedures. The nature of alternative audit procedures varies according to the account and assertion in question. In the examination of accounts receivable, alternative audit procedures may include examination of subsequent cash receipts, examination of shipping documentation or other client documentation to " provide audit evidence for the existence assertion. (SSA 505.32)

•  When the positive request method is used the auditors must:

1. follow up by all practicable means those significant debtors who fail

2. reconcile any difference between the balance confirmed by the

•  After two, or even three, attempts to obtain confirmation, a list of the outstanding items will normally be passed to a responsible company official, preferably independent of the sales accounting department, who will arrange for them to be investigated; this does not of course absolve the auditor from satisfying himself that the clearance procedure is properly carried out and from examining the results. Where there is any limitation in the follow up procedure it is all the more important to apply other auditing procedures to establish that there existed a valid debt from a genuine customer at the date of the verification. These procedures may include:       

1. examination of payments subsequent to the date of the confirmation where there is evidence that the payments are received from or on behalf of the debtor and that they are in satisfaction of specific items;

2. examination of evidence such as customers' orders in correspondence files, shipping documents and billing records, and stock control procedures.

Additional fact

Debtor A had indicated on the face of confirmation reply that the amount was "confirmed" and had attached the debtor's own statement of accounts to the confirmation reply showing a difference amount to the ledger balance. In addition, the confirmation was received via fax.

PMP observations

• A discrepancy: of SS406,869 was noted between a reply to a circularized request of S$537,075 and its recorded amount of $943,944. There was no further work performed to follow up and investigate the adjustment made an( assess its implication on trade receivables as a whole.

• There was no work performed to verify the authenticity of the confirmation.

Common response

• This was an isolated case of oversight and the amount confirmed was mistook as correct.

• There was no indication that the fax is not authentic.

Audit implication

 Existence assertion was not adequately addressed. Learning point

Learning Points

• Investigate and document reasons for the discrepancies.

• Assess the potential impact. (SSA 530.47)

• The auditor considers whether there is any indication that external confirmations received may not be reliable. The auditor considers the response's authenticity and performs audit procedures to dispel any concern.  The auditor may choose to verify the source and contents of a response in a telephone call to the purported sender. In addition, the auditor requests the purported sender to mail the original confirmation directly to the auditor. With ever-increasing use of technology, the auditor considers validating the source of replies received in electronic format (for example, fax or electronic mail). Oral confirmations are documented in the work papers. If the confirmation in the oral confirmation confirmation is significant, the auditor requests the parties involved to submit written confirmation of the specific information directly to the auditor.  (SSA505.33)

Overview

2. Allowance for doubtful debts

            • Assertions - Valuation

Case Study 1 (cont'd)

Additional facts

Ageing profile of trade debtors:

• 0 to 30 days - S$789,072 (40%)

• 30 to 60 days - S$254,098 (13%)

• 60 to 90 days - S$90,869 (5%)

• More than 90 days - S$840,955 (42%)

PMP observations

• There was no assessment of the recoverability of the debts, especially those that were more than 90 days, representing 42% of total debtors.

• There was no testing of ageing report to ensure the accuracy-and reliability of the correct ageing for purpose of assessment of doubtful debts.

Common responses

• Most of the confirmation requests have been received.

• Directors confirmed that there was no recoverability issues.

• Client has been with the public accountant for a long time, no issue with collections.

• Client has good accounting system, no need to test the ageing.

Audit implication

The valuation assertion of trade debtors balance was not adequately addressed.

Learning points

• External confirmation does not ordinarily provide all the necessary audit evidence relating to the valuation assertion, since it is not practicable to ask the debtor to confirm detailed information relating to its ability to pay the account. (SSA505.13)

• Necessary to obtain further collaborative audit evidence: Assessment of recoverability of debts needs to be performed by reviewing subsequent receipts, debtors turnover ratios, ageing details etc. to identify if there are potential recoverability issue and whether an allowance is necessary. (SSA500.8)

• The underlying transactions in the ageing report have to be tested for correct age category in order to rely on the accuracy of the ageing reports for highlighting old aged debts for purpose of assessment of potential doubtful debts - When information produced by the entity is used by the auditor to perform audit procedures, the auditor should obtain audit evidence about the accuracy and completeness of the information. (SSA 500.11)

Additional facts

Subsequent receipts amounting to S$1,679,086 , representing 85% of total debtors were checked to excel tabulation prepared by client.

MP observations

Subsequent receipts were agreed to client prepared schedules. There was no verification to source documents such as bankin-slips-and payment advice from the debtors.

Common responses

• Client has been with the public accountant for a long time, there is no reason to doubt the quality of the client's tabulations.

Audit implication

The valuation assertion of trade debtors balance was not adequately addressed.

Learning points

Audit procedures of agreeing to client prepared scheduled is not considered sufficient appropriate audit evidence to address the valuation assertion. Audit evidence is more reliable when it is obtained from independent sources outside the entity i.e. third party documents such as bank-in-slips and customer's payment advice. (SSA 500.9)

12.  Cash and Bank Balances

Overview

1. Bank Confirmations

        • Assertions -Existence, Completeness, Recording, Valuation, Cut-off

        • SSA505 -External Confirmations

        • SSA230 -Audit Documentation

2. Audit Manual for Small Companies:

         • Bank Balances and Cash: Reference K

Case Study 1  

Facts of the case

    • Cash and Bank balance at year end was S$166,520, representing 9% of total assets.

    • Company had 8 bank accounts and bank confirmation requests were sent for all 8 bank accounts.

    • Trust receipts for S$75,890 was reflected in a bank confirmation.

PMP observations

• No bank confirmation replies were received for 5 out of 8 bank accounts. • There was no follow-up procedures performed on the non-replies to      circularised requests.

• Alternative procedure performed using bank statements did not include the review of banking facilities and securities.

• No work done was performed on trust receipts reflected in bank confirmation.

• Significant reconciling items in bank reconciliations were not. investigated,.

Common responses

Due to late response, checked to bank statements instead.

Audit implication

Incomplete audit procedures performed on bank confirmation may not appropriately address the existence and completeness assertions.

Learning points

• Follow-up procedures should be performed for non-reply of bank confirmation requests.

• SSA 505.31 states that the auditor should perform alternative audit procedures where no response is received to a positive external confirmation request. The alternative audit procedures should be such as to provide audit evidence about the assertions that the confirmation request was intended to provide.

• Alternative procedures should be performed and documented for review of bank facilities and securities. For instance, review of board minutes of meetings and enquiry of bank facilities letters.

• Significant reconciling items in bank reconciliations should be investigated.

13.  Trade Payables

Overview

• Assertions -Existence, Completeness, Recording, Valuation, Cut-off, Validity

• SSA505 - External Confirmations

• SSA230 -Audit Documentation

• Audit Manual for Small Companies:

            - Trade and Other Payables: Reference L 

Case Study 1 - Circularisation

Facts of the case

• Trade and other creditors balance at year end was $558,972.

• There were 9 non-replies arising from the request of circularisation of trade creditors. These amounted to $331,092 representing 66% of total trade creditor balance circularised.

Question.

• What alternative procedures would the auditor perform for non replies?

PMP observations

• Inadequate alternative procedures performed for the 9 non-replies as the alternative procedures were limited to vouching to subsequent payments.

• There was no independent verification to supplier statement of accounts or invoices.:

    -  Either none or inadequate alternative procedures performed to address replies that had exceptions..

Common responses

• Will vouch to supplier statement or invoices in future.

• Will send a reminder for follow-up in future if no reply received.

Audit implication

Incomplete audit procedures performed may not appropriately address the existence and completeness assertions.

Learning points

• Follow-up procedures should be performed for non-replies.

• SSA 505.31 states that the auditor should perform alternative audit procedures where no response is received to a positive external confirmation request. The alternative audit procedures should be such as to provide audit evidence about the assertions that the confirmation request was intended to provide.

• Alternative procedure of vouching only to subsequent payments does not constitute adequate work as it does not constitute good third party evidences to address existence and completeness.

• Alternative procedure should include verifying to original supplier statement of accounts (if available) and/or original supplier invoices (including delivery documents). In Instances where original documents are not available (eg a fax copy of supplier statement of accounts), procedures should be performed to validate the authenticity of the source.

• Where discrepancies are found in the replies compared to book amounts, follow-up procedures such as reconciliation by the company should be performed to resolve the exceptions.  Procedures should be applied to the reconciliation to conclude if the book balances are misstated as at year-end.

Case Study 2 - Non-original replies

Fact of the case

• Trade payables balance at year end was S$8,602,527.

• 2 out of 8 replies to circularised requests were non-original.

PMP observations

   • There was no work done to validate the authenticity of the source of replies received.

Common response

• A case of oversight. Will verify the authenticity of the source of replies in future.

Learning points

• SSA 505.33 states that the auditor considers whether there is any indication that external confirmations received may not be reliable. The auditor considers the response's authenticity and performs audit procedures to dispel any concern.

• Authentication could include calling up the other party to verify the replies received or alternat vi ely, to request that the other party send the original, replies.

• Documentation of the authentication process should be done (SSA230).

Case Study 3 - Search for unrecorded liabilities

Facts of the case

• Trading and manufacturing of fabricated metal products, electrical equipment and accessories and engineering works

• Total trade payable and other payable at year end was S$1,234,942.

PMP observations

• No work done in respect of search for unrecorded liabilities. (This observation was due to lack of documentation of work performed ).

• Work done was limited to checking to correspondence files and minute books. (Note that there were PMP observations of other entities whereby the wok done was limited to checking to subsequent payments ).

Common responses

• Work was done, but not documented.

• Acknowledge the lack of documentation.

Audit implication

 • Assertion of completeness, recording, validity and cut-off not adequately addressed.

Learning point

• SSA 230.2 requires the auditor to document matters which are important in providing evidence to support the audit opinion.

• SSA230.5 requires that the auditor to prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit.

• SSA500.2 requires the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion.

• Procedures for search for unrecorded liabilities should include checking to subsequent payments and unpaid creditor invoices. The work done findings should be-documented in the work papers.

14.  Finance Leases and Sank Loans

Overview

1. Finance Leases and Bank Loans

            • Assertions -Existence, Completeness, Valuation, Presentation

            • SSA505 - External Confirmations

            • SSA230 -Audit Documentation

2. Audit Manual for Small Companies:

            • Long Term Loans: Reference M

Case Study 1

Facts of the case

Company A:

        • Exempt private company with principal activities of importing, exporting and distribution of all kinds of computer products.

        • Term loan balance of S$77,573.

        • Materiality was S$40,000.

Company B:

•  Exempt private company with principal activities of being importers and manufacturers of industrial and electronic products.

•  Hire purchase creditor balance at year end was $23,746. Materiality was S$I9,000.

Question

        • What alternative procedures could the auditor perform, if no confirmation reply was received or a confirmation request was sent.

PMP observations

Company A:  

        • No confirmation reply obtained in respect bank loan balance.

Company B:

        • No confirmation was obtained from the finance company or checked to hire purchase contract.

        • Hire purchase creditors balance was not verified to hire purchase statements.

Common response  

Company A:

        • Due to late response, checked to bank statement instead.

Company B:

        • Will take note.

Audit implication   

• Incomplete audit procedures performed for finance leases and bank loans may not appropriately address the assertions of these financial liabilities.

• SSA 230.2 requires the auditor to document matters which are important in providing evidence to support the audit opinion.

• SSA230.5 requires that the auditor to prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit.

• SSA500.2 requires the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion.

• SSA 505.31 states that the auditor should perform alternative audit procedures where no response is received to a positive external confirmation request. The alternative audit procedures should be such as to provide audit evidence about the assertions that the confirmation request was intended to provide.

Learning points

• Follow-up procedures should be performed for non-reply of finance lease/ bank loan confirmation request.

• The auditor should perform alternative audit procedures where no response is received for a confirmation request. The alternative audit procedures should be such as to provide audit evidence about the assertions that the confirmation request was intended- to provide (SSA505.31). This could include checking to statements or agreements, including re-computations and vouching to payments/disbursements

Case Study 2

Facts of the case

• Company has Term Loan consisting:

    - Short Term S$33,388; and

    - Long Term - S$2,377,853.

• Company has Finance Lease consisting:

    - Short Term - S$50,755; and

    - Long Term - S$136,467.

Question

 • What are some of the disclosures required for:

        - Term Loan

        - Finance Lease

PMP observations

• No disclosure in respect of the following for bank loans / finance leases:

         > effective interest rate;

         > fair value of non-current portion;

         > re-pricing dates or maturity dates of finance leases/ bank loans.

Common response

• Will take note of the required disclosures for subsequent year.

Learning points

• PRS 32.67 states that for each class of financial assets and financial liabilities, an entity shall disclose information about its exposure to interest rate risk including:

                (a) contractual re-pricing or maturity dates, whichever dates are earlier; and

                (b) effective interest rates, when applicable.

• FRS 32.86 states that that except as set out in paragraph 90, for each class of financial assets and financial liabilities, an entity shall disclose the fair value of that class of assets and liabilities in a way that permits it to be compared with the corresponding carrying amount in the balance sheet. Please refer to FRS 39 for guidance for determining fair values.

• In the event that is no material difference between carrying amount and fair value, audit work performed or considerations made by the auditors should still be documented in accordance with SSA 230.

• Disclosures should also include information of any assets that had been held as collateral or security, such the carrying amounts of buildings or machineries being held as security for bank loans. This could be verified to bank facilities offer letters or bank loan replies.

 15.  Provisions

Overview

1. Assertions - Validity, Completeness and Valuation

2. SSA230 - Audit Documentation

3. Audit Manual for Small Companies:

                • Trade and Other Payables: Reference L

Case Study 1

Facts of the case

• Company in business of trading of power plants, parts, marine generators and other machinery

• Other payables balance at year end was S$712,275, of which S$119,187 relates to accrual of bonus and salaries.

• Materiality ofS$110,000.

PMP Observations

• No work done performed on accrual of bonus and salaries.

• No work done on assessment for the need to accrue for staff unutilised leave.

• Lack of corroboration of management's response for adequacy and/or reasonableness of the provision or accrued expenses.

Question

What are some of the procedures that the auditor could perform to address the above observations on (i) accrual of bonus and salaries; and (ii) staff. unutilized leave

Common responses

• Bonus amounts were approved by management/directors.

• Accruals for bonus and salaries was not selected for audit testing. Work was done on the other, other payables balance.

• On no work being done on ununtilised leave, will take note.

 Audit Implications

• Assertions not fully addressed.

• SSA 230.2 requires the auditor to document matters which are important in providing evidence to support the audit opinion.

• SSA230.5 requires that the auditor to prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit.

• SSA500.2 requires the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion 

Learning points

•  FRS 37defines provision as a liability which an estimate is applied to determine the obligation as at the balance sheet date.

• The estimate should be tested accordingly to ensure validity, completeness and valuation of the financial amount of the obligation.

• Accrual of staff related expenses such as payroll; CPF and bonus could be verified to subsequent payments after year-end.

• Accrual of general expenses can be verified by vouching to subsequent invoices received; purchase orders or price quotes received.

• Accrual of unultilised staff leave:

        -  To understand management's basis for accrual made / not made

        -  Work done on the basis could include

                        ■ Checking to un-used leave of staff existing as at year-end, the respective staff's monthly salary and re-computing.

                        ■ Checking historical trend and quantum of payouts of such amounts.

•  As accruals involves accounting estimates and judgment by the management, auditors need to document the nature of such accruals, the basis on which these accruals are made and the auditor's evaluation of these amounts, and conclude on the reasonableness and,,: adequacy (over/under provisions). Disclosures in the financial statements should be made if deem appropriate.

• All work done should be documented as required by SSA230.

 16.  Income Statement - Transaction and Cut-off Test

Overview

1. Income Statement - Sales Transaction Test

• Assertion - Occurrence 

• SSA500 - Audit Evidence

2. Income Statement - Safes and Purchases Cutoff Test

• Assertion - Cutoff

• SSA500 - Audit Evidence

Case Study 1

Facts of the case

For test of details for sales transactions, the audit work performed were:

     • Vouch to sales invoices

     • Check computation

     • Check posting to general ledger

     * In one instance, the audit file only contain completion of audit programme and sample selection planning documents. There were no documentary       evidence of work performed.

 PMP observation

There was no verification to customer acknowledged, delivery orders or shipping documents.

Common responses

•  Sales transactions are mainly in cash. No delivery orders are issued .

• Noted, we should extend test to delivery orders

• Delivery orders checked together with sales invoices but did not document it, will document it in future.

Audit implication

Incomplete audit procedures performed on sales may not appropriately address the occurrence assertion.

Learning points

• The auditor should extend the testing to include acknowledged copy of delivery orders or shipping documents to ascertain occurrence.

• Proper documentation should be on file to address the occurrence assertion should delivery orders or shipping documents not be available. Example: verification to the day's cash receipt deposit slip to the day's sales taking.

Case Study 2

Facts of the case

• For sales (or purchases) cutoff testing, the auditor checked to sales (or purchase) invoices respectively.

• No sales (or purchases) cutoff testing was performed.

PMP observation

There was no verification to customer acknowledged delivery orders/terms of shipping documents, (or goods receipt documents for purchases) to determine the date the title to the goods changed hand

Common responses

• Noted, will extend test to delivery orders (or goods receipt documents).

• Noted, will perform sales (or purchase) cutoff testing in future

Audit implication

Incomplete audit procedures performed on cutoff may not appropriately address the cutoff assertion.

Learning points

The auditor should extend the cutoff testing to include acknowledged copy of delivery order / shipping documents (or good receipt documents) to ascertain proper cutoff.

17.  Income Statement - Staff Cost and Directors' Remuneration

Overview

• Assertions - Completeness, Occurrence, Accuracy, Presentation and disclosure

• SSA500 - Audit Evidence

Case Study 1

Facts of the case

    •  Inadequate testing were performed for staff cost expense and directors' remuneration

PMP observation

    •  The auditor should perform testing work on the staff cost expense and directors' remuneration to address the completeness, occurrence, accuracy, presentation and disclosure assertions.

Common responses

    •  Noted, confirmation will be obtained in future.

    •  Directors' fees are per directors' meeting minutes and approved at the AGM.

Audit implication

     •  Inadequate audit procedures performed on staff cost expense and directors' remuneration may not appropriately address the completeness, occurrence, accuracy, presentation and disclosure assertions.

Learning points

The auditor should perform audit testing work on the staff cost expense and directors' remuneration. Example: month-to-month variance analysis; staff existence test; confirmation of remuneration; etc.

18.  Income Statement - Other Operating Expenses

Overview

       • Assertions - Occurrence, Accuracy, Completeness

       • SSA500 - Audit Evidence

       • SSA530 - Audit Sampling and Other Means of Testing

PMP observation

         •  Inadequate audit work performed on material operating expenses items for addressing occurrence, accuracy and completeness assertions.  

Common responses

        •  We did a review of the types of expenses to the general ledger

        •  Amount is. not significant as compared to cost of sales (amount is double of materiality)

        •  Analytical review performed by partner but not documented

Audit implication

• While selective examination of specific items from a class of transactions or account balance will often be an efficient means of gathering audit evidence, it does not constitute audit sampling. The results of audit procedures applied to items selected in this way cannot be projected to the entire

• The auditor considers the need to obtain sufficient appropriate audit evidence regarding the remainder of the population when that remainder is material. (SSA530.26)

Learning points

• The auditor should consider the appropriateness of the samples tested (example: cost of sales; payroll; etc.) as compared to the population in which conclusions are drawn (the entire operating expenses). 

• The auditor should perform appropriate testing work on material operating expenses items.

19.  Audit Completion

Analytical Review

         •  Applicable auditing standards:

                    -SSA 520-Analytical Procedures

         •  Documentation guidance (ICPAS Audit Manual):

                    - For small companies

                            •  B9 : Final analytical review

Learning Points

     •  The auditor should apply analytical procedures as risk assessment procedures to obtain an understanding of the entity and its environment. Application of analytical procedures may indicate aspects of the entity of which the auditor was unaware and will assist in assessing the risks of material misstatement in order to determine the nature, timing and extent of further audit procedures. (SSA520.08)

     •  Analytical procedures applied as risk assessment procedures use both financial and non-financial information, for example, the relationship between sales and square footage of selling space or volume of goods sold. (SSA520.09)

     •  The conclusions drawn from the results of analytical review at the end of the audit are intended to corroborate conclusions formed during the audit of individual components or elements of the financial statements and assist in arriving at the overall conclusion as to the reasonableness of the financial statements. (SSA520.13)

     •  When analytical procedures identify significant fluctuations or relationshipsthat are inconsistent with other relevant information or that deviate from predicted amounts, the auditor should investigate and obtain adequate explanations and appropriate corroborative audit evidence. (SSA520.17)

Post Balance Sheet Events Review

Applicable auditing standards:

      -  SSA 560 Subsequent Events

      -  SSA 500 Audit Evidence

      -  SSA 230 Audit Documentation

Documentation guidance (ICPAS Audit Manual)

    - For small companies

             • T : Summary sheet - post balance sheet events

             • T2 : Audit program - post balance sheet events

             • T4 : Final program - post balance sheet events

Post Balance Sheet Events Review Case Study 1

 Facts of the Case:.

          • Date of the financial statements ("FS") : 31/12/07

          • Date of approval of the FS : 28/02/08

          •  Date of the auditors' report : 28/02/08

          •  Date the FS are issued :15/03/08

 Question:

     • Up to which date should the auditor perform procedures designed to obtain sufficient appropriate audit evidence that all events that may require adjustment of, or disclosure in, the financial statements have been identified?  

PMP Observations:

• Subsequent events review not performed, or not updated up to the date of the auditors' report.

• Subsequent events review was performed, but not dated.

• No audit procedures performed despite completing audit program as `'noted" or "done" or "NA"

• There is no documentary evidence of work done:

• Discussion with management on subsequent events not documented.

• No documentation to justify why subsequent events review was not performed.

Common Responses:

     •  Post balance sheet events review not performed:

• Post balance sheet event review could not be performed as the FS/management accounts subsequent to the balance sheet date was not available at the time of the audit.

• Audit was completed shortly after balance sheet date.

• Work was performed based on program.

• Other audit procedures such as Sales and Purchases Cut-off, Subsequent payments to trade creditors, Subsequent collections from trade debtors and Search for unrecorded liabilities were done.

     •  No/lack of documentary evidence:

• The completion of the audit program is also a form of documentation of the work done.

• Upon finalization of the audit work, discussions would be held with the client. Any material post balance sheet events, if any, would be documented. Otherwise, there would be no documentation. Given the limited number of clients and the small size of operations, we operate under the "know-your-client" principle.

Audit Implications:

• Without performing a subsequent events review, the auditor may fail to consider the effect of subsequent events on the financial statements and on the auditors' report.

Learning Points:

• The auditor should consider the effect of subsequent events on the financial statements and on the auditor's report. (SSA 560.02)

• The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion. (SSA 560.02)

• The auditor should perform procedures designed to obtain sufficient appropriate audit evidence that all events up to the date of the auditor's report that may require adjustment of, or disclosure in, the FS have been identified.

  • These procedures are in addition to routine procedures which may be applied to specific transactions occurring after the date of the FS to obtain audit evidence as to account balances as at the date of the FS, for e.g., the testing of inventory cutoff and payments to creditors. The auditor is not, however, expected to conduct a continuing review of all matters to which previously applied procedures have provided satisfactory conclusions. (SSA 560.05)

• Audit procedures performed in relation to the subsequent events review (such as inquiries with management) should be clearly documented so that there is "sufficient and appropriate record of the basis for the auditors' report; and evidence that the audit was performed in accordance with SSAs and applicable legal and regulatory requirements:' (SSA 230.02)

Management Representation Letter - Case Study 2

 Applicable auditing standards:

     - SSA 580 Management Representations

     - SSA 240 The Auditor's Responsibility to Consider Fraud in an Audit of Financial Statements

Documentation guidance (ICPAS Audit Manual):

     - For small companies

•  B7 : Summary of unadjusted errors

•  B83.1 : File completion questionnaire

Management Representation Letter - Case Study Two

Facts of the Case:

     • Date of the financial statements ("FS") : 31/12/06

     • Date of the management representation letter : 26/02/07

     • Date of the auditors' report : 22/10/07

Question:

     - Has the management representation letter been appropriately dated? What further procedures can be performed to address the above circumstance?

PMP Observations:

• Management representation letter was not dated.

• Management representation letter was obtained and dated after the date of the auditors' report.

Common Response:

         • Due to oversight.

 Audit Implication:

         • An inappropriately dated management representation may not provide sufficient, appropriate audit evidence that is necessary to support the audit opinion.

Learning Point:

        • A management representation letter would ordinarily be dated the same date as the auditor's report. However, in certain circumstances, a separate representation letter regarding specific transactions or other events may also be obtained during the course of the audit or at a date after the date of the auditor's report, for example, on the date of a public offering. (SSA 580.13)

Management Representation Letter - Case Study 3

Facts of the Case:

• Private company with turnover of $543,831 and loss before tax of $366. Audit materiality is $15,000.

• Year end is 31/03/07 and auditors' report date is 19/09/07.

• Included in management representation letter dated 19/09/07 is the following paragraph:

• Due to the small nature of the business there is no elaborate system of internal control but the directors are personally involved and responsible for all the transactions of the company.

Question:

•  Given the small scale of the client's operations, is the above representation sufficient for audit purposes?

•  If the total uncorrected misstatements are less than the materiality of $15,000, would any additional representations be required? Would the response be different if the total uncorrected misstatements exceeded $15,000?

PMP Observations:

• Failure to ensure that management representation letters include management's acknowledgement of its responsibility for the design and implementation of internal control to prevent and detect error. Written representations from management did not include the summary of uncorrected misstatements.

Common Responses:

    • Exclusion of management's responsibility for the design and implementation of internal control to prevent and detect error from the representation letter:

            ❑Due to oversight.

            ❑As all our clients are small in size and everything is under the control of directors/shareholders, internal control procedure is not very important.

            ❑The directors have accepted responsibility for internal control through the "Statement by Directors".

   • Summary of uncorrected misstatements

            ❑Have been separately discussed and agreed with management. ❑Not attached to the representation letter due to oversight.

Audit Implications:

• Because of the nature of fraud and the difficulties encountered by auditors in detecting material misstatements in the financial statements resulting from fraud, it is important that the auditor obtain a written representation from management, without which other sufficient appropriate audit evidence cannot reasonably be expected to exist.

Learning Points:

 •  The auditor should obtain written representations from management that:

1. it acknowledges its responsibility for the design and implementation of internal control to prevent and detect error; and

2. It has disclosed to the auditor the results of its assessment of the risk that the financial statements may be materially misstated as a result of fraud. (SSA 240.39)

 •  The auditor should obtain written representations from management  that:

1. It acknowledges its responsibility for the design and implementation of internal control to prevent and detect error; and

2. It believes the effects of those uncorrected financial statement misstatements aggregated by the auditor during the audit are immaterial, both individually and in the aggregate, to the financial statements taken as a whole. A summary of such items should be included in or attached to the written representations. (SSA 580.05a)

Going Concern

        • Applicable auditing standards:

        - SSA 570 Going Concern

        • Documentation guidance ICPAS Audit Manual)

        - For small companies

                        • T 3 : Going concern - checklist

                        • T3.1: Going concern - conclusion

Going Concern - Case Study 4

Facts of the Case:

    • Principal activities : Trading of office equipment, computer accessories and its related products

    • Financial year-end : 31/12/2007

    • Turnover - $42,302,394; Loss before tax - $4,293

    • Total assets - $3,994,739; Net current liabilities - $251,681

    • Materiality : $164,184

Question.

• What are the considerations and documentation required to support that the FS can be prepared on a going concern basis?

PMP Observations:

     •  No going concern evaluation performed or the evaluation was superficial and inadequate.

     •  Did not adequately perform the following procedures:

                ✓ identify or evaluate the significance of conditions indicating that an entity may not be able to continue as a going concern, such as cumulative. losses since incorporation, negative operating cash flaws, and net liability/ net current liability positions.

                ✓ Evaluate management's plan to mitigate the effects of such adverse indicators, and/or obtain Information about the likelihood that such plans could be implemented effectively.

                 ✓ Evaluate the adequacy of the financial statements' disclosure of the going concern conditions and management's plan to mitigate them.

Common Response:

        • Based on verbal discussions with management and the understanding of the client's business, the auditor had assessed that the going concern assumption is appropriate and. thus did not deem it necessary to document the work done.

             - E.g. The net current Liabilities position is caused by amounts due to directors, which if excluded, the company will be in net current

                asset position. However, this has not been documented as it can be derived from the audit working papers.

Audit Implications:

        • The going concern assumption is a fundamental principle in the preparation of financial statements and the auditor's assessment must be clearly documented as the conclusions reached will have an impact on the final audit opinion.

Learning Points:

• When planning and performing audit procedures and in evaluating the results thereof, the auditor should consider the appropriateness of ,management's use of the going concern assumption in the preparation of the financial statements. (SSA 570.02)

• The auditor should consider the same period as that used by management in making its assessment under the applicable financial reporting framework. If management's assessment of the entity's ability to continue as a going concern covers less than twelve months from the balance sheet date, the auditor should ask management to extend its assessment period to twelve months from the balance sheet date. (SSA 570.18)

• When events or conditions have been identified which may cast significant doubt on the entity's ability to continue as a going concern, the auditor should:

• 1. review management's plans for future actions based on its going concern assessment;

  2. gather sufficient appropriate audit evidence to confirm or dispel whether or not a material uncertainty exists through carrying out audit procedures considered "necessary; including considering the effect of any plans of management and other mitigating factors; and

  3. seek written representations from management regarding its plans for future action. (SSA 570.26)

• When Going Concern Assumption Appropriate but a Material Uncertainty Exists

• If adequate disclosure is made in the financial statements, the auditor should express an unqualified opinion but modify the auditor's report by adding an emphasis of matter paragraph i at highlights the existence of a material uncertainty relating to the event or condition that may cast significant doubt on the entities ability to continue as a going concern a n d draws attention to the note in the financial statements that discloses the matters. (SSA 570.33)

20.  Justification of Audit Opinion

    • Applicable auditing standards:

             - SSA 700 The Independent Auditor's Report on a Complete Set of General Purpose Financial Statements

             - SSA 701 Modifications to the independent Auditor's Report

    • Documentation guidance (ICPAS Audit Manual)

            - For small companies

                     • B6 : Justification of audit report

Justification of Audit Opinion - Case Study 5

Facts of the Case:

        -  Principal activities : Importer, exporter, wholesaler and retailer of all kinds of electronic goods.

        -  Turnover - $12,870k; Loss before tax - $341k; Total assets - $4,705k; Audit materiality - $75k

         -  No stock take was performed on stocks amounting to $264k held at one location due to incomplete record-keeping of the stock quantities.

Question:

        -  What is the possible impact on the audit opinion? Please provide justifications (reasonable assumptions can be made).

Additional Facts:

-  The stocks for which no stock take was performed amounted to $264k.

-  Total stocks balance at year-end = $668k.

Question:

     -  How would these additional facts affect your previous assessment? Given the above limitation on scope, please justify how an unqualified audit opinion is appropriate.

PMP Observations:

• No documentation in the work papers to justify the audit qualification or non-qualification.

• No emphasis of matter paragraph that highlighted the existence of a material uncertainty relating to the event or condition that may cast significant doubt on the entity's ability to continue as a going concern.

Specific Response:

• The company has a perpetual inventory system in use and management has done the physical stock counts at year-end. We have also discussed the control cut-off with the managing director on the inventory movements. The stock amount of $264k represents approximately less than 1/0 of the company's total assets, which we feel has insignificant impact on the financial statements. These considerations, however, were not documented in the working papers.

Audit Implications:

• When forming an opinion on the FS, the auditor evaluates whether, based on the audit evidence obtained, there is reasonable assurance about whether the FS taken as a whole are free from material misstatement.

  • This involves concluding whether sufficient appropriate audit evidence has been obtained to reduce to an acceptably low level the risks of material misstatement of the FS and evaluating the effects of uncorrected misstatements identified.

   

• As certain audit evidence may appear to contradict or is inconsistent with the auditor's final conclusion, it is therefore important that the justification of the audit opinion is clearly documented.

 Learning Points:

    • The auditor should evaluate the conclusions drawn from the audit evidence obtained as the basis for forming an opinion on the financial statements. (SSA 700 .11)

    • Modifications to the Auditor's Report (SSA 701.02):

                - Matters that Do Not Affect the Auditor's Opinion

                            • Emphasis of matter

                - Matters that Do Affect the Auditor's Opinion

     • Qualified opinion,

     • Disclaimer of opinion, or

     • Adverse opinion.

     • Matters that Do Not Affect the Auditor's Opinion

                -The auditor should-modify the auditor's report by adding a paragraph to highlight a material matter regarding a going concern-'problem.`

     • The auditor should consider modifying the auditor's report by adding a paragraph if there is agni scant uncertainty (other than a going concern problem), the resolution of which is dependent upon future events and which may affect the FS.

• An uncertainty is a matter whose outcome depends on future actions or events not under the direct control of the entity but that may affect the financial statements. (SSA 701.07)  

    •  Matters that Do Affect the Auditor's Opinion

• A qualified opinion should be expressed when the auditor concludes that an unqualified opinion cannot be expressed but that the effect of any disagreement with management, or limitation on scope is not so material and pervasive as to require an adverse opinion or a disclaimer of opinion.

• A qualified opinion should be expressed as being 'except for' the effects of the matter to which the qualification relates. (SSA 701.12)

• A disclaimer of opinion should be expressed when the possible effect of a limitation on scope is so material and pervasive that the auditor has not been able to obtain sufficient appropriate audit evidence and accordingly is unable to express an opinion on the FS. (SSA 701.13)

    •   Matters that Do Affect the Auditor's Opinion

• An adverse opinion should be expressed when the effect of a disagreement is so material and pervasive to the financial statements that the auditor concludes that a qualification of the report is not adequate to disclose the misleading or incomplete nature of the financial statements. (SSA 701.14)

• Whenever the auditor expresses an opinion that is other than unqualified, a clear description of all the substantive reasons should be included in the report and, unless impracticable, a quantification of the possible effect(s)6-6 the financial statements. (SSA 701.15)

21.  Financial Statements Disclosures.

Auditors' Report on Financial Statements - Case Study 6

Facts of the Case:

     • Year-end : 31 March 2007

     • Date of auditors' report : 23 October 2007

Question:

    • What are the factors to be considered when determining the date of the auditors' report?

Additional Facts of the Case:

 • Bank confirmation reply was dated 30 October 2007.

 • Trade debtors' and creditors' confirmations were sent out on 29 October 2007.

Questions:

    • is the current date of the auditors' report of 23 October 2007 still appropriate?

    • How would these facts affect the date as to date which the audit report should be dated?

PMP Observations:

     •  The auditors' report was dated prior to the completion of the audit.

     •  The auditors' report did not comply with the format set out in SSA 700.

• Did not have a title that clearly indicates that it is the report of an independent auditor.

• The auditor's address was not disclosed in the auditor's report. -There was no description of the components of the financial statements .

• The page number references of the financial statements are incorrect or are not indicated in the auditors' report

Common responses:

• Due to an oversight.

• Due to error when typing the auditors' report date.

Learning points:

• SSA 700.23 states that the auditor should date the report as of the completion date of the audit. This informs the reader that the auditor has considered the effect on the financial statements and on the report of events and transactions of which the auditor became aware and that occurred up to that date.

• SSA 700.52 states that the auditor should date the report on the financial statements no earlier than the date on which the auditor has obtained sufficient appropriate audit evidence on which to base the opinion on the financial statements. Sufficient appropriate audit evidence should include evidence that the entity's complete set of financial statements has been prepared and that those with the recognized authority have asserted that they have taken responsibility for them.

• SSA 700.17 lists the elements of the auditor's report when the audit has been conducted in accordance with the SSAs:

  • Title;

  • Addressee;

  • Introductory paragraph;

  • Management's responsibility for the financial statements;

  • Auditor's responsibility;

  • Auditor's opinion;

  • Other reporting responsibilities;

  • Auditor's signature;

  •  Date of the auditor's report; and

  • Auditor's address.

Financial Statements Disclosure - Areas of Non-Compliance

Please review the set of financial statements of "S-GAAP (SINGAPORE) PTE LTD" for any areas of non compliance with SFRS in relation to disclosure and presentation.

General

    • The entity's registered office and principal place of business was not updated. (FRS 1.126a).

    • The functional currency of the company was not disclosed. (FRS 21.17, FRS 21.51)

    • No disclosure of the date the financial statements were authorised for issue by the directors of the company. (FRS 10.17)

Profit and Loss Statement

    • Profit and loss account was presented using a hybrid classification of expenses by nature and by function. (FRS 1.88)

    • There was no breakdown of "Other expenses" which are material to the financial statements. (FRS 1.29, 1.86)

Statement of changes in equity

 -  There was no disclosure of the item of income and expense for the period that is recognised directly in equity, and the total of these items. (FRS 1.96b)

Cash flow statement

 • Fixed deposits pledged to a bank as security for credit facilities granted cannot be withdrawn at any time, and thus should not be included as cash and cash equivalents. (FRS 7 Definition)

• Misclassification within categories of cash flows, e.g. factoring loan, amount due to directors, trust receipts and hire purchase creditors should be classified under financing rather than operating activities. (FRS 7.17)

• Finance cost which is a financing activity was not adjusted from the net cash flows from operating activities. (FRS 7.20c)

• Proceeds from and payments of borrowing was stated on a net basis instead of its respective gross amounts. (FRS 7.21, FRS 7.22)

• The cash outflow from the purchase of plant and equipment should exclude the amount purchased via finance leases. FRS 7.43)

Basis of preparation

• The measurement basis for the preparation of the FS was disclosed as using "historical cost", which is Incorrect as there are other assets and liabilities being carried at fair value in the balance sheet. (FRS 1.108, 1.109)

Accounting policies

    • No disclosure of significant accounting policies (for e.g. financial assets and liabilities, impairment, revenue recognition, leases) (FRS 1.108, 1.110, 1.112)

Critical accounting estimates, assumptions and judgments

 • There was no disclosure of key assumptions concerning the future, and other key sources of estimation uncertainties at the balance sheet date. (FRS 1.113, 1.116)

FRS and INT FRS not yet effective

• There was no disclosure of the new FRS/INT FRS that have been issued but are yet effective. (FRS 8.30)

Financial instruments & Financial risk management

• There was no disclosure of how the company is mitigating its risk of foreign currency and cash flow interest rate exposure. (FRS 107.31-42)

• Concentration of credit risk was not disclosed (heavy reliance on one customer, large proportion of trade receivables belonged to a few debtors). (FRS 107.34c)

• No disclosure of outstanding forward foreign exchange contracts at the year end. (FRS 107.39a)

• No disclosure of fair value of each class of financial assets and liabilities.  (FRS 107.25-29)

• No disclosure of significant terms and conditions for each class of financial asset and financial liability. E.g. Maturity dates and effective interest rates on fixed deposits, terms loans and hire purchase, credit terms and conditions of trade receivables and payables, denomination in foreign currency . (FR5 107.7, 107.36, 107.37, 107.39)

Related parties

• No disclosure of key management personnel compensation (FRS 24.16).

• No disclosure of related party balances and transactions. (FRS 24.17)

Inventories

• No disclosure on the cost formula of stocks used. (FRS 2:36a)

• No disclosure whether the inventories were stated at cost or fair value less cost to sell. (FRS 2:36c)

• No disclosure of the amount of inventories write-down that was charged to the P/L during the year. (FRS 2:36e)

Work-in-progress/ Progress billing

• No disclosure of the aggregate amount of cost incurred and recognised profit to date, the amount of advances received and the amount of retentions. (FRS 11.40) 

• The disclosure did not separately disclose the gross amount due from customers for contract work as an asset; and the gross amount due to customers for contract work as a liability. (FRS 11.42)

Property, plant and equipment

• There was no disclosure of the gross carrying amount and the accumulated depreciation (aggregated with accumulated impairment losses) at the beginning and end of the comparative period. There was also no disclosure of the additions and disposals of property, plant and equipment during the comparative period. (FRS 1.36)

• There was no disclosure of the securities held by the bank in relation to the leasehold property. (FRS 16.74a)

Income taxes  

• There was no disclosure of an explanation of the relationship between tax expense (income) and accounting profit. (FRS 12.81c)

• There was no disclosure on unrecognised DTA (e.g. unutilised tax losses). (FRS 12:81e)

• There was no disclosure of the nature and breakdown of the deferred tax balance. (FRS 12.81g)

• DTA and DTL were disclosed gross even though the DTA and DTL were levied by the same taxation authority on the same taxable entity. (FRS 12:74)

Share capital and reserves

• There was no disclosure of the par value per share, or that the shares have no par value [FRS 1.76a(iii)] and the rights, preferences and restrictions attaching to that class including restrictions on the distribution of dividends and the repayment of capital [FRS 1.76a(v)].

• There was no disclosure of the nature and purpose of the reserve (FRS 1.76b).

Dividends

•  No disclosure of the amount of dividend paid per share (FRS 1.95)

Revenue

• Accounting policy for revenue recognition does not appropriately define the points of transfer of significant risks and rewards of ownership of the goods to the buyer, which is the point when revenue it recognised. (FRS 18.35a)

• No disclosure of breakdown of revenue between sales of goods and services income. (FRS 18.35b)

• The disclosure of the nature of revenue is inconsistent with the activities of the company.

Operating leases

• There was no disclosure of the commitments for future minimum lease payments under non-cancellable operating leases (FRS 17.35a), the lease payment recognised as an expense during the year (FRS 17.35c), and a general description of the company's leasing arrangements (FRS17.35d)

Reclassification of accounts (FRS 1.38, 1.39)

• Inconsistent classification of balances with prior period's FS. The nature; the amount and reasons for the comparative figures or reclassification was not disclosed. 

Financial Statements Disclosure -

New Standard or Interpretation that has been issued but is not yet effective

Applicable accounting standard:

 FRS 8.30: When an entity has not applied a new Standard or Interpretation that has been issued but is not yet effective, the entity shall disclose:

1. this fact; and

2. known or reasonably estimable information relevant to assessing the possible impact that application of the new Standard or Interpretation will have on the entity's financial statements in the period of initial application

Where to obtain the information:

• The complete list of standards (FRS) and interpretations (INT FRS) can be obtained from the Accounting Standards Council website http://www.asc.gov.sg/.

• List of INT FRS issued but not yet effective as at April 2009:

List of INT FRS Issued but not yet effective as at April 12009: 

Appendix

(Ref: Para. 1)

Specific Audit Documentation Requirements and Guidance in Other SSAs

This appendix identifies paragraphs in other SSAs as at 31 December 2007 that contain specific documentation requirements.  The list is not a substitute for considering the requirements and related application and other explanatory material in SSAs.

•           [Proposed] SSA 210 (Redrafted), “Agreeing the Terms of Audit Engagements” – paragraphs [9-11]

•           [Proposed] SSA 220 (Redrafted), “Quality Control for an Audit of Financial Statements” – paragraphs [26-27]

•           SSA 240 (Redrafted), “The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements” – paragraphs 44-47

•           [Proposed] SSA 250, “The Auditor’s Responsibilities Relating to Laws and Regulations in an Audit of Financial Statements” – paragraph [28]

•           SSA 260 (Revised and Redrafted), “Communication with Those Charged with Governance” – paragraph 19

•           SSA 300 (Redrafted), “Planning an Audit of Financial Statements” – paragraph 11

•           SSA 315 (Redrafted), “Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment” – paragraph 33

•           [Proposed] SSA 320 (Revised and Redrafted), “Materiality in Planning and Performing an Audit” – paragraph [14]

•           SSA 330 (Redrafted), “The Auditor’s Responses to Assessed Risks” – paragraphs 29-31

•           [Proposed] SSA 450 (Revised and Redrafted), “Evaluation of Misstatements Identified During the Audit” – paragraph [20]

•           SSA 540 (Revised and Redrafted), “Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures” – paragraph 23

•           [Proposed] SSA 550, “Related Parties” – paragraph [29]

•           SSA 600 (Revised and Redrafted), “Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors)” – paragraph 50

PLANNING AN AUDIT

OF FINANCIAL STATEMENTS

This revised Singapore Standard on Auditing (SSA) 300 supersedes the SSA of the same title in May 2007.

Auditors are required to comply with the auditing standards contained in this SSA in respect of audits of financial statements for periods beginning on or after 15 December 2009.

SINGAPORE STANDARD ON AUDITING 300

(REDRAFTED)

PLANNING AN AUDIT OF FINANCIAL STATEMENTS

(Effective for audits of financial statements for periods beginning on or after December 15, 2009)

CONTENTS

                                                                                                                                       Paragraph

Foreword

Introduction

Scope of this SSA                                                                                                                        1

Effective Date  &nbs